The Most Profitable Strategy You’ve Never Heard Of
<p>Before understanding how this strategy works, you must first understand the concept of implied correlation.</p>
<p><strong>Implied Correlation</strong></p>
<p>Implied correlation is a measure of the expected correlation between individual stocks in a basket, as priced by the options market. It reflects how closely the market expects the price movements of these stocks to be connected or related in the future. The higher the implied correlation, the more the market expects these stocks to move together.</p>
<p>For example, let’s consider two stocks: Stock A and Stock B. If the options market prices their options in a way that suggests that the prices of Stock A and Stock B are likely to move together in the future, then the implied correlation between these two stocks would be high. Conversely, if the options market prices suggest that the prices of Stock A and Stock B are likely to move independently or even in opposite directions, then the implied correlation would be low.</p>
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