Futures Measures

PAIRS TRADING CHECKLIST

Futures Measures

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

Pairs trading is a method of going long one futures product and going short another one that is similar/correlated to the first one.

This is a useful trading strategy to know when IV is low and we are looking for another way to engage with the markets.

Generally you want to pick two products that have a correlation between .65 and .85 and then adjust the ratio of the two products according to notional value and implied volatility, called the Implied Volatility Adjusted Notional Ratio.

Pairs trading allows us to extend duration, reduce risks, and keeps traders involved in low IV environments.

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