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ING December put-call parity is out of whack; 15 put less 15 call creates a synthetic long with a discount of about $2.20; stock at 14.27 so inverse conversion gets $1.47 in premium. My question - what could the effect of the upcoming rights issue on this trade be? Any expectation on...

dmo – regardless of whether going small or big, I am trying to understand the underlying risks, to better understand the probability for a loss and situations that could drive it – in both long and short EFPs. My question is not only regarding situations which seem to be 'out of whack' ...

Anyone with EFP experience - please respond to http://www.elitetrader.com/vb/showthread.php?s=&threadid=181986 I was not sure which is the right thread nor how to cross-post - but I got onto this thread and obviously some of you do have the experience and knowledge... Thanks!

I consider opening EFP positions (at IB) and holding until expiration in order to capture discounts or premiums. I also consider using high leverage (if I correctly understand, the margin requirement is only 5%). I am trying to understand the risks – for loss, and for unexpected increases in...

Did anyone here backtested: a. Time stop (always exiting trades if they have not reached the mean after n days, e.g. n=6 or n=8) . b. Stoploss based on standard deviation, or percentage loss, or other criteria. In the past I have analyzed a number of past trades and seemed to me that an...

I was searching for such a solution. Talking with Ninja Trader, seems to me that one could implement entries and exits for pairs by writing code for trading in an IB account. It could not be done using their 'wizard', though, and one will have to use C#. As I am not familiar with NJ nor C#...

I made the same request. Based on manual analysis on a number of pairs in the exported spreadsheets, seems to me results could be significantly improved with a time based stop. Also I have the impression that a different time stop for different pairs would be better than a fixed one...

To my understanding IB offers limit orders on combos, but not stop orders. So one could enter a pair trade with a limit order, but the capability for an automated exit with a stop on the pair spread is not there.

Pairtrade Finder does not give you a backtest of a full portfolio, nor for a date range. At least not in a summary form. You can though export for each pair an excel spreadsheet with all trade details. I presume a Virtual Basic or database programmer could extract detailed portfolio backtest...

Quote from chiefraven: hey guys, anyone find correlated pairs by using excel or methods other than pairtrade finder? You can find a comprehensive list of the top correlated pairs in the market, as well as stocks that correlate well to a specific stock of your choice, at...

This would be a very good approximation. Helps a lot for quick mental calculation, but will not give the exact result in a spreadsheet. If the ratio is the Long stock divided by the Short stock, I think that for the accurate % profit one should multiply this by the ratio of the Short stock...

Johnnysharp, would you mind to clarify how would the ROI look like without leverage, or say what was roughly the average & max leverage you used? ... I presume 1:10 is a typo; I am just trying to get an idea of what can one aim for. Pairs trading lends itself to portfolio-margin accounts...

Johannysharp wrote: ROI = 64% since start of journal Annualized = 153% SP500 Outperformance = 102% since start of journal >>> Johnnysharp - Hats off! And thanks for sharing. Please clarify: This 64% ROI, at what level of maximum margin (e.g. typical 1:2, or 1:4 portfolio margin) ...

yobo, how far do you let trades that go against you run? what do you do as a stoploss? A stoploss on spread, e.g. a fixed number of standard deviations? A fixed percentage of P/L ? Something else?

Johnnysharp, could you please clarify what exactly you mean by "overextended"? Do you mean new high/low or something else? My gut feeling is that if I see a chart where the spread is now beyond its levels in the past few months (in other words, a new high or low) it would be a risky trade...

Johnnysharp, thank you for the steady journal and sharing your results. Looking at the spreadsheet: Average profit of 1.46% per trade, 2.19 profit factor. Pretty nice. What was the average trade time? (.. I could probaby dig dates out of the posts, but it would be pretty tedious :-) )...

Gabe - a key advantage of pair trading is the possibility to trade profitably while consistently being market neutral (in $ amount or volatility). The idea is that your profitablility will not be influenced by the overall market. If you have a good system to determine future market...

Johnny - excellent thread, great trading. All the best for 2009. I have questions regarding trade management. You have mentioned that you do not apply your own stoploss on the spread, just wait for the program's exit signal (which I presume would have a built in stoploss). Also I...