--- title: "What is dispersion trading | RupeeCase" description: "Dispersion trading sells volatility on the index and buys volatility on the stocks inside it." source_url: "https://www.rupeecase.com/learn/questions/what-is-dispersion-trading" --- Realised correlation among the Nifty 50 names has swung from near zero to above half since March Realised correlation of the Nifty 50 names over twenty sessions, derived from the index variance and the stock volatilities, with the weights of 10 Jun 2026 held fixed. A proxy from end of day data, not NSE Indices' own file. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026. 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](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) What is dispersion trading?Dispersion trading sells volatility on the index and buys volatility on the stocks inside it, so it earns when the stocks move more independently than the index's option prices imply. Its main risk is that correlation rises in a sell-off, when most stocks fall together and the gap the trade depends on closes. LGo deeper ## Where Learn teaches this. [Go deeperThe variance risk premium in Nifty10 min, Advanced](/learn/path-16/module-16-13-variance-risk-premium)[Go deeperStraddles and strangles, long and short8 min, Intermediate](/learn/path-17/module-17-5-straddles-and-strangles)[Try itImplied correlationThe correlation the index IV and 50 stock IVs imply on a dated session, beside the realised one.](/learn/tools/implied-correlation) SSources ## Go to the source. 2 sources, NSE the most cited The publisher of each source listed below. Source: Module undefined source list. 1. [NSE, equity derivatives contract specifications (instruments, expiry, lot size and settlement)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE 2. [Driessen, Maenhout and Vilkov (2009), The price of correlation risk: evidence from equity options, Journal of Finance](https://doi.org/10.1111/j.1540-6261.2009.01467.x) Paper ?Questions people ask ## Related questions. [QuestionWhat is implied volatility?Beginner](/learn/questions/what-is-implied-volatility)[QuestionIs option selling paid for taking risk (the variance risk premium)?Advanced](/learn/questions/variance-risk-premium)[QuestionVolatility smile or skew: what is the difference?Intermediate](/learn/questions/volatility-smile-vs-skew)[QuestionWhat is India VIX?Beginner](/learn/questions/what-is-india-vix) [All 130 questions](/learn/questions/) Explore next ## Go deeper on this question. * [QuestionMean reversion or momentum: what is the difference?A short answer with a dated chart](/learn/questions/mean-reversion-vs-momentum) * [QuestionWhat is statistical arbitrage?A short answer with a dated chart](/learn/questions/what-is-statistical-arbitrage) * [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder) * [GlossaryInvesting glossary, 230 termsPlain word definitions, and the app’s own](/learn/glossary) Community ## Join my WhatsApp group. Scan the code, fillFill one short form, and join my WhatsApp group. Slides, sources, factsheets and the rebalance logs live there, and members join a daily Google Meet with me. New to RupeeCase? [Getting started](/getting-started) [See the terminal](/terminal) [Sign up for RupeeCase](https://invest.rupeecase.com/signup) [Join the WhatsApp group](https://forms.gle/C6HMtM1Z2GfeocQV7) [One form, one group](https://forms.gle/C6HMtM1Z2GfeocQV7)Scan with your phone camera Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.