Realised correlation among the Nifty 50 names has swung from near zero to above half since March
The chart shows realised correlation among the Nifty 50 names, measured over twenty sessions, from 1 Mar 2026 to 15 Sep 2026. It has swung between near zero and above half. A dispersion trade is a bet on where this number goes relative to what the options imply.
Index variance depends on the stocks' variances and on how they move together. Implied correlation is the average correlation that the option prices imply, given the index weights. A dispersion trade sells the index and buys the stocks against that number, so it profits when realised correlation comes in below the implied figure.
A common build sells index options or variance, buys options on the largest constituents, and keeps the book close to delta neutral. Its profit and loss is roughly the gap between implied and realised correlation, scaled by vega, before costs.
Correlation tends to rise in sell-offs, when most stocks fall together. That lifts realised correlation and cuts the gap the trade depends on. Public research finds that implied correlation sits above realised on average, which is a premium paid for carrying that risk.
In India one candidate index is Bank Nifty, whose constituents are concentrated and liquid, but it now has monthly expiries only. Stock options are monthly and physically settled, and their spreads are wider. A ban on new positions can block one leg. The mechanism is the lesson here, not a plan to run.
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study