”I must admit I was a bit confused by Profit's implication that the IV influences his weighting.”
If you were doing 100% replication then you could forget IV. However, I think with just a small basket of stocks the individual stock volatility is an important factor. It would be easier if all the stocks had the same IV.
Some small caps there - RTR, SAB, PRU - 10% move on any of those wouldn't touch the footsie.
The number of ESX contracts to buy is a difficult one, and is probably a function of how well you think everything will correlate. I don't quite follow your formula, but I think you're assuming correlation of +1 there.
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