JPMorgan-Global Equity Derivatives Systematic Dispersion Update and T...-110470470

Global Quantitative & Derivatives Strategy25 September 2024J P M O R G A Nwww.jpmorganmarkets.comContentsOverview of Dispersion 20242Forward Looking Themes8Volswap Dispersion Levels Update11SPX T50 3M/6M Straddle Dispersion Update12Global Quantitative and Derivatives StrategyYangyang Hou AC(44-20) 3493-1012yangyang.hou@jpmorgan.comJ.P. Morgan Securities plcDavide Silvestrini AC(44-20) 7134-4082davide.silvestrini@jpmorgan.comJ.P. Morgan Securities plcBram Kaplan, CFA(1-212) 272-1215bram.kaplan@jpmorgan.comJ.P. Morgan Securities LLCTony SK Lee(852) 2800-8857tony.sk.lee@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedFollowing the Practical Dispersion Trading Handbook, we provide an update for dispersion trades in Europe and the US year-to-date and conduct a deep-dive attribution analysis distinguishing the drivers of the PnL for the index leg and single-stock leg by region:•Index leg: The drivers of volatility are different for each index due to their distinct factor and sector exposures. We discuss the effects of correlation and techniques to avoid drawdowns, reiterating the effectiveness of VIX/VSTOXX option overlays.•Single-stock leg: we examine which names delivered excess carry using four matrices: sector bias, factor exposures, large versus small cap, and high versus low volatility stocks. We discuss the findings on the drivers of realized volatility and explain the reasons for the current elevated entry levels.•Trade recommendations: we recommend a bespoke dispersion basket of global stocks with highly negative Value scores and exposure to China , as we continue to believe that this theme can deliver excess volatility going forward.•Dispersion levels and analytics: we provide an update on vanilla volswap dispersion levels for major indices as well as the SPX T50 3M/6M straddle dispersion analytics.See page 14 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Global Equity DerivativesSystematic Dispersion Update and Trade Ideas2Yangyang Hou AC(44-20) 3493-1012yangyang.hou@jpmorgan.comGlobal Quantitative & Derivatives Strategy25 September 2024J P M O R G A NOverview of dispersion strategiesSPX straddle dispersion’s single stock leg was primarily driven by earnings season volatility, while the index leg positively contributed mostly in July, when index volatility realized sub-10 vol points; the subsequent August correlation shock wiped out most of the YTD returns.Figure 1: SPX Top50 systematic straddle dispersion performance Vega neutral, daily delta hedgedSource: J.P. Morgan Equity Derivatives StrategyFigure 2: SPX Top50 PnL split between index and ss leg3M Tenor, Pnl is Ter