Pair Trading with Options: 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:
https://www.amazon.com/Handbook-Pairs-Trading-Strategies-Equities/dp/0471727075
You can also find some material in our Resources Library here:
https://blog.pairtradefinder.com/pair-trading-research-studies-articles/
Related Articles
Stock Pair Trading: How to Trade Stock Pairs with PairTrade Finder®
For trading with Stockpair, we recommend using the floating options and then just following the trading signals PTF provides. For further information we encourage you to contact Stockpair for a demo trading account so you can practice first without ...
Using Pair Journal and Pre-Screened Stock/ETF Ticker Sheets in PairTrade Finder®
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 FX ...
Forex, CFDs, Futures, and Options: Trading with PairTrade Finder®
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 ...
Small Account Trading: Minimum Recommended Account Size for Pair Trading Strategy
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 ...
Pair Trading Suitability: Is Pair Trading Suitable for Traders in Australia?
Absolutely. PairTrade Finder was invented by Jared Mann of Brisbane back in 2008. We bought it in 2016. It is an Aussie product as you will hear from our 3 Hour, 11-Lecture Video Course, taught by Jared. ASX gives great pair trading opportunities ...