Spread Trading Strategies

Well SOMEONE must believe in this Head & Shoulders (reference my recent post asking if a Head & Shoulders formation on a 10-Yr chart has significance). A report today states a very bearish trader just put on an extraordinary heavy PUT position on HOT (Starwood)....which is a holding co. for various hotel chains.

article: http://finance.yahoo.com/news/bearish-trader-checks-starwood-160736212.html

btw..... Since halving my position yesterday on my pair, HOT short / HST long, through the session today with 55 min remaining, HOT has had more strength upward in price than my HST, weakening the trade notably.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3600557>
 

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Quote from deucy28:

Well SOMEONE must believe in this Head & Shoulders (reference my recent post asking if a Head & Shoulders formation on a 10-Yr chart has significance). A report today states a very bearish trader just put on an extraordinary heavy PUT position on HOT (Starwood)....which is a holding co. for various hotel chains.

article: http://finance.yahoo.com/news/bearish-trader-checks-starwood-160736212.html

btw..... Since halving my position yesterday on my pair, HOT short / HST long, through the session today with 55 min remaining, HOT has had more strength upward in price than my HST, weakening the trade notably.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3600557>
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I closed half the position some days ago for a gain that would ordinarily be equivalent to a full position for me.

It closed today with its widest spread (gain) since inception of the trade.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3606905>
 

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Observe that in on the three month chart, the first two months witnessed HST being inferior. HST has just now reached parity with HOT. It has the potential to plot much farther up relative to HOT and superior to HOT.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3606906>
 

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Correction to the last post (HOT short HST long): I meant to say that three months ago and two months ago, HST was SUPERIOR to HOT. The two reversed positions and the rubber band stretched to the max relative to the history of these two's plots.

This thread is amazingly quiet for addressing a style of trading that is amazingly successful. Bone deserves better. I thank Bone for his reply earlier. I would like to get deeper into his methodology.

I trade only once or twice per month. It takes me that long to find trades as good as this one (earlier post) for potential or approaching as good as this one. Life gets in the way, too. Since there is no interest in mine, I humbly withdraw.

Should there be interest in sharing nominations for trades, perhaps we can put some higher octane of participation on this thread. Please post here or PM me if shy. Should Bone feel we are stepping on his modality of spread trading, I will respectfully withdraw and start my own thread. Traders can continue to exchange with others here and another thread, participating in two different approaches to spread trading. But quite frankly I would love to learn more on this thread with Bone's approach. We can be holistic, can't we ?

In what I personally think will become a more dangerous environment, spread trading IMHO, largely will survive. I have found its conservative approach but steady gains with few booked losses is a nice way to trade for those of a similar mind.
 
Quote from deucy28:

Correction to the last post (HOT short HST long): I meant to say that three months ago and two months ago, HST was SUPERIOR to HOT. The two reversed positions and the rubber band stretched to the max relative to the history of these two's plots.

This thread is amazingly quiet for addressing a style of trading that is amazingly successful. Bone deserves better. I thank Bone for his reply earlier. I would like to get deeper into his methodology.

I trade only once or twice per month. It takes me that long to find trades as good as this one (earlier post) for potential or approaching as good as this one. Life gets in the way, too. Since there is no interest in mine, I humbly withdraw.

Should there be interest in sharing nominations for trades, perhaps we can put some higher octane of participation on this thread. Please post here or PM me if shy. Should Bone feel we are stepping on his modality of spread trading, I will respectfully withdraw and start my own thread. Traders can continue to exchange with others here and another thread, participating in two different approaches to spread trading. But quite frankly I would love to learn more on this thread with Bone's approach. We can be holistic, can't we ?

In what I personally think will become a more dangerous environment, spread trading IMHO, largely will survive. I have found its conservative approach but steady gains with few booked losses is a nice way to trade for those of a similar mind.
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Looking at this XLK-SPY spread to continue higher, I am long after today. In this type of environment divergence trading sectors can be a very good strategy.
 

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i haven't read all this thread yet .. but wow this is good stuff... just sucking it in... i'm a options trader wanting to dig deeper into the world of term structures, pairs, etc.. etc..
 
Good thread.. I'll bet you look at the long-term successful people options, futures, or stocks (just substitute the word 'pairs' for 'spreads') - most are doing this in some form. There's no free lunch of course, but I too can attest it's the real deal, if you're into consistent gains and a long-term career in trading that is...

Can you guys suggest a not too expensive charting package? thx,
 
Quote from Shanb:

Looking at this XLK-SPY spread to continue higher, I am long after today. In this type of environment divergence trading sectors can be a very good strategy.
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Please tell me how you distilled a pair into one plot.
 
Quote from esc_trader:

Good thread.. I'll bet you look at the long-term successful people options, futures, or stocks (just substitute the word 'pairs' for 'spreads') - most are doing this in some form. There's no free lunch of course, but I too can attest it's the real deal, if you're into consistent gains and a long-term career in trading that is...

Can you guys suggest a not too expensive charting package? thx,
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If you have lots of money, than trades in this manner can be lucrative for your time spent. If you have a modest amount of money, then you are getting returns exceptionally higher than dividends for money put into trades. If you have small amount of money to trade with, it's just a hobby. Consider in each of these scenarios your time spent researching for the trade and following the trade.

You can get dynamic charts with TD Ameritrade for none to little money in an account you open there. You can get with with very little money an account in Think or Swim and have available to you Prophet Charts which is fairly robust and dynamic for the TA types .
I am not a TA trader, but I think these two may be a good start.
 
Quote from deucy28:

Please tell me how you distilled a pair into one plot.
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I use prophet charts on Thinkorswim. You can sign up and get a paper account for free!
 
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