, we looked at a pairs trade betwen SPY and DIA, where we traded a cross-product . This week we will look at the same pairs trade, but rather than looking at the cross-product Strangle, we will look at the cross-product Iron Condor (selling a in one underlying and selling a in the other).Study
- 45 DTE
- Simulated Pairs Trades when SPY and DIA daily returns diverge >0.25%, >0.50%, >0.75%
- Sold 30∆/10∆ Call Spread in over performer and sold 30∆/10∆ Put Spread in under performer
- Compared results to selling naked premium for pairs trade (last week's study).
- Defined risk pairs trades show similar win ratios and slightly lower average P/L compared to their undefined counterparts.
- Traders who prefer defined risk trades can feel confident when pairs trading, as buying protection doesn’t impact results too much.