Why Pair Options are ideal for creating strategies

Pair options allow you to trade a well-defined market neutral strategy which can produce profits under all market conditions, i.e. bullish or bearish trends, etc. This is because they enable you to speculate on the relative performance or two highly correlated firms operating in the same market sector, e.g. BP/Shell, over a specified period of time.

Pair options have been constructed so that correlation can be used as a parameter to assess the ongoing relative performance of two assets as a percentage. This feature facilitates the construction of basic pair options strategies based on statistical analysis using established technical indicators, such as the Bollinger Bands, mean derivation and Fibonacci numbers, etc.

Consequently, you have better chances detecting new quality trading opportunities using pair options because you can exploit these impressive statistical features. For example, you simply need to identify when the correlation of two securities begins to diverge because such events normally imply that the conditions are prime to open a new position.

The Fundamentals of a Basic Pair Options Strategy

In order to construct a basic pair options strategy you will need to perfect your skills at decision making, market timing and position sizing, etc. Basically, you must learn how to use correlation to identify divergence which will occur when one asset starts to either under-perform or over-perform its counterpart. The former case offers excellent opportunities to activate CALL pair options while you should consider opening PUT options under the latter conditions. Your efforts to master these skills will be worthwhile especially because one of the most important benefits of pair options is that they involve low levels of risk.

Designing Basic Pair Options Strategies

First you need to compile a portfolio of a number of asset pairs that are highly correlated e.g. Amazon/Apple, BT/Vodafone, Exxon/Shell, etc. You should then devise methods using fundamental or technical analysis to allow you to monitor the key parameters of the two securities comprising those pairs of interest, i.e. performance history, relative growth and volume, etc.

You will find that Stockpair, a premier pair options broker, supplies a wide selection of tools to allow you to perform this task competently. You then need to rate the assets pairs in your portfolio using statistical models such as Fibonacci numbers or the mean-diversion concept. For instance, outperforming assets could have low ratings while under performing ones will register high values. Your basic pair options strategy will then advise you to open CALL options when assets post high scores and activate PUT ones when ratings are very low.

By devising basic pair options strategies constructed on the concepts outlined above, you will then definitely increase your chances of trading successfully especially if you keep your costs low and utilize a premier trading platform, such as that supplied by Stockpair.