Platinum pairRobbyP, on our Unum Capital Trading desk, asked me look at Implats (IMP) vs Amplats (AMS) for a pairs trade.
Unfortunately this trend doesn't look like it has reversed, so I'm staying away.
Pairstrading
SPY/QQQ - Feb.'18 Vertical Spread Pairs Trade (SPY side)Trade details for SPY :
261/258 Put Vertical Credit Spread @ $0.37
Prob. of Max Profit = 79.79%
Prob. of Max Loss = 12.62%
Break-even @ $260.63
52 D.T.E.
Trade plan:
QQQ identified to be overbought + sign of weakness compared to recent rally.
SPY & QQQ are highly correlating, with QQQ as more volatile mover (suitable for debit spread).
Feb. expiration has sufficient premium for credit spread + room for adjustment during trade if needed
Built credit spread in SPY + Built debit spread in QQQ
For SPY credit spread:
Expecting SPY to expire worthless IF market rallies with no consolidation + $37 profit will lower QQQ max loss ($293) by 12% before any QQQ adjustments
Max risk ($263) in SPY is possible with strong market plunge, BUT QQQ profits will cover that sufficiently in that case.
Check QQQ side of pairs trade for more information.
Copper/Oil spread: once again getting out of handWe have an interesting spread between copper and oil, with the ratio chart showing signs of outperformance in Copper, relative to Oil today. We might be at a local bottom for this ratio, which paves the way for AUDCAD longs, as well as trading Copper and Oil futures/CFDs as a pair, going long Copper, whilst simultaneously going short Oil.
This is a very interesting signal, so keep an eye out for the effects of it. Check related ideas for the previous signal' results.
Cheers,
Ivan Labrie.
CNQ Bear Call Spread and XOP Bull Put SpreadI am not sure if this is the right forum for this but anyway... Pairs trading is a statistical arbitrage strategy designed to exploit short-term deviations from a long-run equilibrium pricing relationship between two stocks. This is a well known strategy used by hedge funds and institutional investors. I have previously used pairs trading by trading two correlated stocks. Normally a trader would go long on an underperforming stock and, at the same time, go short on an outperforming stock. If properly constructed this approach eliminates net equity market exposure and the performance is then only depends on the relative performance of the two stocks. As you can see from the above chart CNQ and XOP are correlated and move in a very similar fashion. It is not surprising as they both have very similar drivers - the price of oil and gas. CNQ has recently been outperforming XOP so to construct a pair trade a trader would short CNQ and go long XOP.
For this trade I utilised stock options by selling two January 2016 credit spreads at the same time - CNQ $22/$23 Bear Call Spread for $0.26 and XOP $27/$28 Bull Put Spread for $0.32. The total credit received from these two spreads - $0.58. The maximum risk for the trade is $1.42 per spread and the maximum return is $0.58 per spread (excl. commissions). If the spread between these tow stocks returns to mean, I should be able to profit from the trade. Let's see how this trade performs over the next 4 weeks when the Jan options expire.
Follow-Up of Winning Long DuPont/Short SPY Pairs Trade As soon as DD turn up relative to SPY on the day highlighted it was the time to put on the trade. Even if you waited until it went over the 10-day average of the ratio, you would have gotten in with very good risk/reward. You would have had 1% drawdown on the first day's open, then as much as a 19% gain from there to today's high, or a 16% return to the last sale.
Had you just bought in on the day of publication, your maximum drawdown was 0.42% and your maximum upside was 19.79% for a worst/best ratio of over 40:1. Now that is a big trade.
You can see how easy it is to graph the ratio - just type in one symbol, then the "/" backslash and the next symbol, with no spaces. Ratios often tend to trend a bit better than outright positions, but there are no guarantees.
Wishing you many more returns.
Tim 2:59PM EST 10/6/2015
