Can I use Options to Pair Trade Stocks?
Q: I was wondering if you or any of your subscribers have implemented the strategy using options; e.g., when a signal is generated buying an at the money call for the stock purchased and buying an at the money put for the stock that is sold?
A: It depends on the underlying universe of securities that you wish to pair trade. If you are looking to pair trade highly liquid U.S. Equities, then using options to pair trade is a GREAT idea because:
1. Options provide about 10:1 inherent leverage
2. The options strategy has a built-in time stop
3. The options strategy has a built-in max loss stop loss
Provided a liquid option market exists on both symbols in the pair, its a great way to go.
You can reduce the outlays by buying both call spreads and put spreads too.
The best discussion we've seen of the strategy is in Douglas Ehrman's book below:
You can also find some material in our Resources Library here:
Trading on PTF PRO with Forex, CFDs, Futures and Options
Traders interested to trade FX, CFDS, futures or options will want data on currencies (forex), futures, CFDs or options for which they will require an IQfeed data subscription or an integration to their Interactive Brokers' Trader Workstation, as per ...
Pair Journal Sheet, Pre-Screened Stock and ETF ticker sheets
Here is the link to the Pair Journal Sheet: www.pairtradefinder.com/Pairs_Journal.xls There are 3 tabs in the spreadsheet. ETFs, FX and trade journal. The ETF tab can also be used to calculate positions sizes for stock positions. The FX tab is for ...
How many pairs do I need on Watchlist to generate a well-diversified portfolio of pairs in trade?
QUESTION: During the course it is stated that only around 30% of pair trade signals actually meet the criteria for a trade. Working on the basis of a target 20 position portfolio at capacity, I would want around 60 pair trade signals per month. ...
PTF and Pair Matcher
PTF is incompatible with Pair matcher software and to run PTF you would need to uninstall Pair Matcher.
Can you use this strategy with a small account, and what's the minimum account size that is recommended?
The ability to use the strategy effectively depends on two critical things: a. conservative position sizing and b. very low commissions. While you can use a small DMA CFD account of say $2,000 to try out a few trades at $1000/leg, unless your ...