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Category Archives: Pairs Trading

Kill the Headlights and Put it in Neutral

I woke up this morning and couldn’t care less about what had happened in the overnight trading session.  The book I took home on Friday was delta neutral; $50,000 long, $50,000 short between two separate pairs trades.  When the market opened, I quickly identified another pair whose 30 day spread had widened out to nearly four standard deviations.  I quickly decided to setup the pair with $15k on each side.  Almost instantly, the trade rallied $1.20 in my favor and generated $500 of P&L.

In this incredible bull run we have witnessed, many investors have been left scratching their head in anticipation of the pullback that hasn’t come.  It is a time when the collective intelligence has been collectively uncertain as to the direction of the next big move.  In a market like this,  I have found great comfort in a market neutral strategy.  By substituting speculation for statistics, I have been able to remove market bias from my trading and put the odds in my favor.