No Comments A lot of times when doing technical analysis traders try and eliminate market forces and market sympathy from being factored into their decision of what and where to trade. When you eliminate this part of the analysis of the equation, you are said to be trading a market neutral strategy.
One great strategy that attempts to do this is called Pair Options Trading. Pair Options Trading is based on the theory that certain assets have shown over time to have their price move very close to the same length over the same time frame as another asset; this is called correlation of the pairs. The relative amount of correlation between two pairs when it comes to trading is addressed as a percentage.
The advantages of pair options
Of course at the opposite end of the spectrum there can be zero correlation between asset pairs if they move in opposite directions all the time.
Why is correlation a useful parameter on which to base a trade on?
Pair Options Trading
The answer is because it has a predictive nature to it when analyzing and monitoring favorable factors for placing a trade. Two assets that often correlate together send a strong signal to place a trade when one starts to deviate from the other.
This market neutral strategy, pair options, option pair to fully capture all the benefits that close correlation has to offer. When investors see a break in the movement of two highly correlated assets, they can place both a put option on one asset and a call option on the other asset at the same time.
Chances are that atleast one of the trades will be profitable for them if they do this.
One nice thing about pair options is they can be profitable regardless which direction the market is trending in. Many trading sites allow you to select assets that can be tracked according to the correlation between them.
Analysis of this can directly lead to finding profitable trading opportunities. In case you were wondering, the entire concept of pair option trading is not a new concept by any means.
Trade off stocks, indices or commodities against each other to see who will perform better
It has been used by traders as a market neutral strategy for many years because it has proven to be reliable and effective. Many closely related strategies have been formed from using the basic premise of pair options strategy too.
A trading website called Banc de Binarywas the first to introduce it for use in online trading in ; this made this type of option pair information available to everyone, not just big professional investment firms.
So now that this information is available and ready to use, take some time to examine it. If you read more on the subject of pair options trading, you will see that the correlation between many pairs has already been figured out for you.
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That should make it easy for you to spot the uncorrelated movement between the pairs option pair place your profitable put and call options exactly where they need to be. Start trading now by opening a FREE account on one of our recommended brokers.
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