A slightly easier way to play the dispersion trade is to simultaneously buy a stock and sell a call option on an ETF. The logic is that during periods of high implied correlation, the premium on an ETF is typically higher than on an individual stock. [What You Should Know About ETF Moving Averages.]
While strategies such as these may have merit and could be worth considering, studies have shown that the more complex a strategy, the less likely an investor is to actually put it to use. We prefer a simple strategy, such as trend following, to pick and choose ETFs. You can read more about how it works here.
For more stories on ETFs, visit our ETF 101 category.
Sumin Kim contributed to this article.