What is option Pair Trading Strategy?

[samwarez]

What is option Pair Trading Strategy?

how is it work
please help

 

[Somatung]

What is option Pair Trading Strategy?

how is it work
please help

What is a Pair Option?

Pair options have only been introduced into the marketplace in relatively recent times. They provide traders with the opportunity to speculate on which asset out of a selection of two will outperform its counterpart over a specified period of time. Traders do not have to concern themselves with predicting the direction in which price will advance as they do with standard binary options. As such, trading pair options presents unique opportunities to acquire lucrative returns which do not exist using other investment types.

StockPair which support pair options, provides an extensive selection list of stocks traded on the US and European exchanges. Generally, the two underlying assets comprising a pair belong to companies whose trading performances are highly correlated and normally operate within the same market sector, e.g. retail banking or telecommunications, etc. These features imply that investors should be able to readily detect any trading divergences that are about to occur between the two stocks comprising a pair. Pair options brokers also tend to provide a wide selection of expiry times which range from intra-day to multi-month.

In summary, pair options operate in a similar way to standard binary options. The main difference is that pair options are not oriented about price movement but, instead, focus on the relative performances of two highly correlated companies over a specified time. Consequently, they offer unique opportunities for gaining sizeable profits by implementing innovative strategies.

http://pairoptiontrading.com/what-is-a-pair-option/

How to Trade Pair Options

The first step you must undertake in order to trade pair options is to locate a suitable broker. Unfortunately, as this investment type is relatively new, your choice is quite restricted. In fact, the only company that provides such a comprehensive on-line service is Stockpair which will allow you to trade pair options by selecting from extensive list of over 75 asset pairs.

Once you have open an account with Stockpair and make your initial deposit, you can then start opening positions by visiting its trading room. A screen will appear enabling you to activate pair options as well as choosing which stock market you would like to trade, i.e. either USA or Europe. You should particularly notice that the assets comprising the pairs on offer are those of companies whose trading performances are highly correlated and in the same marketing sectors, i.e. Shell/BP, Barclays/HSBC and BT/Vodafone, etc. These features are especially important as they will enable you to detect any sudden deviation in the comparable trading patterns of the two companies comprising a pair.

Once you have selected a pair, a new screen will appear allowing you to opt for your preferred type of pair option. You have two choices which are fixed or floating. The former enables you to choose a fixed expiry time and the measurement of the relative performance of the two assets commences as soon as your trade is activated. In contrast, floating options can be cashed-in before their expiry dates elapse and the measurement of relative performance starts at a predetermined period of time, such as a day, week or month. They can payout large returns in excess of 300% compared to about 80% for fixed options.

You must then choose an expiry time which can range from one hour up to 150 days for fixed pair options. Next, you need to decide which of the two assets comprising your pair will outperform the other within a specified time. The payout for each stock is readily displayed so that you will know exactly the return you can expect if your option finishes in-the-money at expiration. Finally, you must enter the size of your deposit and chose which asset you think will outperform the other. A trading chart will appear displaying the relative performance of the two assets continuously until expiration.

http://pairoptiontrading.com/how-to-trade-pair-options/

What are Fixed Pair Options?

Fixed Pair Options allow traders to decide the expiry times of their Pair Options whenever they activate positions. These options always close at a fixed expiry time. The relative performance of the two assets, forming the pair, commences as soon as the trade is executed. Expiry times for fixed pair options range between 15 minutes and 150 days from start time. Payouts for fixed pair options, which can be as high as 86%, depend on the assets selected and are clearly advised before execution.

On certain longer term Pair Options trader has the opportunity to sell his position before expiry.

http://pairoptiontrading.com/fixed-pair-options/

What are Floating Pair Options?

Floating Pair Options are contracts that determine which underlying asset performs best, out of the two selected, over a predetermined period of time, i.e. a day, week or month. The measurement of the relative performance of the two assets commences at the start of a predefined period in contrast to that of the fixed pair option which starts as soon as a trade is executed. For this reason the relative performance at the time the trade is executed will have been measured from the beginning of the time period. Payouts can thus exceed 300% as an asset you may choose may already be way behind in relative performance.

You have the ability to sell floating options early. Payout for early termination is displayed or you may set an upper or lower sell limit. If sale price of asset reaches your upper or lower limit before expiry, trade will automatically be closed at that price.

http://pairoptiontrading.com/floating-pair-options/

 

[Somatung]

What is Pair Trading?

Pair trading, also known as statistical arbitrage or spread trading, is a strategy that allows the trader to capture anomalies, relative strength or even fundamental differences on two stocks or baskets while maintaining a market neutral position. This powerful trading strategy once used only by large institutional investors and hedge funds has been adapted for implementation in your taxable trading accounts. Market neutrality has never been more important, as it allows the trader to capture profits in up, down, or sideways markets while giving you the freedom from having to predict the direction of the overall market.

http://pairtrader.com

and so on.

@Samwarez

Do "Google" and you will find a lot of answers for your question.

Take care / Dan