Stocks Week Ahead: Volatility Dispersion Trade Unwind Likely Ahead of Key Earnings

Stocks experienced a volatile trading session on Friday, with the market fluctuating before finishing higher but remaining within the recent range of the past few days.

That previous diamond pattern formed around earnings season; now, another diamond is shaping up during the current earnings season.Systematic volatility funds typically sell implied volatility at the index level while buying implied volatility in mega-cap stocks, hedging their positions by going long on the underlying equities.As earnings reports start rolling in, that trade will begin to unwind, causing implied volatility to crash as each company reports.

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