www.guerillastocktrading.com I have got oodles of interest on my pair trading article and the play I entered in both Apple and Research In Motion. I went long Apple and short Research In Motion. The approach of matching a long position with a short position in two stocks of the same sector is called pair trading. This forms a hedge against the sector and the general market that the two stocks are in. The hedge created is essentially a gamble that you are placing on the two stocks; the stock you are long in against the stock you are short in. As its name suggests, a pair trading line of attack is a double-pronged method, where two apparently unrelated option or stock positions are opened simultaneously. The tactic can give somewhat of a safety net to defend against an unexpected move in a certain sector, while capitalizing on a specific equity’s relative-strength backdrop. In effect, a pair trader hedges his or her bets, opening positions in two interrelated equities or indexes and working them against one another, choosing 1 call (bullish) position and 1 put (bearish) position. The duo of positions then collectively gives money-making returns amid a number of outcomes. For instance, I had a great point of view regarding Apple, but a pessimistic sentiment concerning Research In Motion. I went long on Apple whereas I shorted Research In Motion. I also had an uneasy sentiment concerning the entire technology sector. By taking a short position in Research In Motion, it …
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