Call versus Call – CvC

A Call versus Call also called CvC is a famous OTC instrument traded within the inter-dealer broker market (IDB). Call versus Call are mostly traded as short correlation instruments, meaning that the structure will be like a dispersion trade using vanilla options or varswap for example.


Payoff of a Basket Call:


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A trader going long of a CvC will be short call on a basket of single stocks and long call on each baskets’ components (just like a classic dispersion trade). The weights are usually chosen so that the structure is close to zero vega, most of the time.

A trader who long a CvC will be long volatility and short correlation (as dispersion are positively correlated to volatility and negatively correlated to with correlation).


However, unlike an index dispersion trade which has unlimited downside, performing particularly poorly in a sudden market sell-off (as all the underlyings tend to drop and are correlated between each other’s), a long CvC trade has downside limited to the net premium paid for the whole structure. Hence, a CvC trade allows investors to take a long dispersion position without the downside risk of a traditional variance dispersion trade using options and/or varswaps.

CvC are mostly traded on markets (Single stocks market) where options and variance swaps’ liquidity is not as important as on the index market for example.


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