Pairs Trading
- Thread starter jcstylin
- Start date
They don't "mandate" any particulars, but since we have historically traded so few options/futures, the whole "package" (including pricing) needs to be adjusted for these products.
Don
Pair trading is a near-attenuated strategy that is the day trading firm owner's best buddy.
You see, pair trading used to be a near risk-free opportunity. You'd short one stock and buy the other of a correlated pair that exhibited mean-reverting tendencies once they diverged by some std dev measurement. And this used to occur regularly. Now, since everyone and thier mother knows what pair trading is, these situations are much fewer and farther between and the divergence much much smaller than it used to be. The consequence of which is two-fold:
1. You need to get into sick size in order to make money, and ;
2. Itâs riskier now than ever because the std dev spread which signals a trade is smaller than it ever has been and when it expands even more, youâre exposed to serious losses.
But Don Bright loves it so â forcing you to buy a ton of shares on 2 stocks. That commission whore. Whenever a charlatan touts something like this, it should be treated as a contra-indication.
You see, pair trading used to be a near risk-free opportunity. You'd short one stock and buy the other of a correlated pair that exhibited mean-reverting tendencies once they diverged by some std dev measurement. And this used to occur regularly. Now, since everyone and thier mother knows what pair trading is, these situations are much fewer and farther between and the divergence much much smaller than it used to be. The consequence of which is two-fold:
1. You need to get into sick size in order to make money, and ;
2. Itâs riskier now than ever because the std dev spread which signals a trade is smaller than it ever has been and when it expands even more, youâre exposed to serious losses.
But Don Bright loves it so â forcing you to buy a ton of shares on 2 stocks. That commission whore. Whenever a charlatan touts something like this, it should be treated as a contra-indication.
...or simply spread out and trade 20 pairs at the same time, instead of that single one. Now the risk suddenly have dropped somewhat...
Sorry, but once again, this is nonsense. Our traders pick their size, limit their number of layers (or some simply trade one layer). We encourage "crutch pair trading" which cuts commissions in half. Your information is either just wrong, or perhaps not understood, either way, it's just silly.
If traders don't make money, they tend to go away...how smart would it be to encourage them to go away?
And, I suppose those reading this stuff are better off listening to name calling children, with nothing of value to add. And, if you have something serious to discuss, then let's do it...I'm always glad to make myself, and crew, available for any type of serious trading discussion.
Don
Heh -- I'll vouch for that.
That is Risk Arbitrage, and while it is a cousin of Statistical Arbitrage [a misnomer because their is no arbitrage to it at all], doesn't entail the same risk. Pairs trading [stat arb] is far riskier than Risk Arb, which is probably why the position size in the pairs don't get as big as they do in Risk Arb.
What is tragic is that, because the people that handicap these mergers are so good at it, most traders throw massive size at them, building _huge_ positions. When the deal is broken, you can be sure there are also broken traders. They did everything right - it is just that their number came up...Nothing you can do.
nitro