Best Practices

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Step by Step Pairs Trading

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

In today’s Best Practices, Tom and Tony break down pairs trading and run through all a trader needs to know when looking for pairs trades.

The 4 key points they cover are:

  • Find correlated underlyings that have had a recent divergence in price
  • Find the notional value of each
  • Adjust the notional value for implied volatility
  • Find contract ratio to match notionals

Tune in for Tom and Tony’s elaboration of each of the 4 steps!

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