Old dispersion product signals new vol regime

Return of pre-crisis, ‘theta-flat’ trades an early sign of shifting volatility expectations

Dealers say theta-neutral structures have become more attractive as equity market volatility has returned

A jump in US equity market volatility is sparking interest in pre-crisis dispersion structures that ditch the long-volatility bias found in the trade in recent years. 

Sustained demand for the trade would be a sign of changed volatility expectations, dealers say – the so-called theta-flat product makes most sense in a higher-volatility environment. Its vega-flat alternative had become standard in the post-crisis years when volatility was low. 

“If we see a widespread shift to theta-flat disper