My Little Tricks for Profitable Spread Trading Webinar

On Wednesday we hosted a webinar where I talked about my little tricks for profitable spread trading.  We had a great group.  If you missed it, you can see the replay at the bottom of this post.

My favorite little trick is to combine two different types of metrics for finding good candidates.  We went through the example of statistical metrics + fundamental metrics.  I want to hear if you are trying this type of trading strategy, and how you are making it work for you.  Please feel free to comment here to this post or send me feedback on twitter.

Produced and written by Jennifer Galperin.  Follow me on twitter and StockTwits.  

Day-Trade Priceline Earnings

Tuesday in the after hour market, Priceline ($PCLN) reported earnings and gapped down 13%. Expedia ($EXPE) followed and went down 4% on the news. I quickly went to our Spread Analyzer to run a 2 year query on $PCLN versus $EXPE (see the results below). I noticed that the Pearson correlation of 20.83% was very low for the pair and that there was a good chance for $EXPE to bounce back some. I bought $EXPE for 56.5 and quickly flipped it for a $.50 per share profit.  I was able to use the Spread Analyzer's stats to exploit the relationship between the two stocks. In this case I did not catch the falling knife, but used a non-correlated competitor to take advantage of the news.

  

There are all kind of ways to use stats and pairs trades to make money. Anything you want to add?  

  

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

  

  

  

   

Day-Trade Coach Earnings

Earlier this week I had a great trade on $COH earnings.  I was able to use the new features of Spread Analyzer to help me discover a good opportunity and capitalize on it in a seamless way.  Here is a short video showing the trade and how I used the technology.

 

  

Produced by Jennifer Galperin.  Follow me on twitter and StockTwits.

Value Investing Made Smarter

The Best Trading Video Ever

If I had one trading video to recommend, Charlie D's trading video would be it. This video was created in 1989 and it is a must watch for all traders. I want to thank the trader on Twitter who lead me to it (unfortunately I can't remember who it is).

Here is a cool example of how we applied Charlie D's advice recently. On June 28 after the market closed, this tweet from Aris David caught my attention.

FYI, Europe covered before the close FTSE last minute rally $EWU

Our signal had a  super strong buy signal going into the U.S. close and we were waiting for a dip to buy. After the market closed at 4pm, the S&P futures went down 7 points and we decided to buy a bigger futures position based on our signal and Aris' information. We thought someone new something about Europe given how the FTSE closed and the S&P selloff presented an attractive opportunity. We had more conviction and we committed.

That is what spread trading is for us. Trading the relationships. Not only the statistical relationships between stocks, but information against information; a stock price against its intrinsic value; price against news. Spread trading is about exploiting two levels of potential energy and their relationship.

The next day, the market went up about 2 percent. Someone knew and we exploited it.

Do you understand why spread trading is so interesting?

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

Tools to Make Spread Trading Easy as a Summer's Breeze

In this video, Jennifer discusses the tools we have added to our Spread Analyzer to make spread and pairs trading easy as a summer's breeze.

 

Trading Your Google Glasses

With the introduction of its Nexus tablets and its glasses, Google (GOOG) will have an abundance of fresh news in the next few months which will create trading opportunities.

 

This situation is appealing to us because the stock is statistically cheap against the Technology Select SPDR (XLK) as you can see on the Spread Analyzer image displayed below. GOOG is also cheap againstIntel (INTC) and the triple Qs (QQQ), but we like the $spread better against the XLK given the volatility of the spread. This vehicle will move quite a bit on fresh news and traders can take advantage of this by leaning on GOOG's cheapness. You can look at the $spread within the analyzer right here for more clarity. You can play around with the timeframe or run GOOG against any others stocks of your choosing. We are long GOOG against INTC, QQQ, and XLK.

  

Go ahead play with it, rate your $spreads, and if you tweeted about it, one of our traders will be happy to make an assessment of it.

 

Written by Michael Bigger. Follow me on Twitter and StockTwits.  

 

VMware Versus the Technology Select Spider Spread

We are monitoring the $XLK $VMW $spread based on recent insider activities. We are hoping that we can get a spike in the 10 * $XLK - 3 * $VMW to the 20 level. We have used the My Alerts feature of our Spread Analyzer to monitor this $spread for us. Located below, are all the documents supporting our thesis, as the insider buying we think is bullish for VMW (bearish for the spread). If the $spread reaches the $20 level, we will be happy sellers.

Written by Aris David. Follow me on Twitter and StockTwits. 

 

Kroger Versus S&P Spread

Some of my favorite scans we provide to our SpreadTraderPro members are statistical runs on ETFs vs stocks. On May 2, Kroger caught my attention as it was cheap statistically versus $SPY.  The spread SPY-KR was trading near the high of the range, with a zscore of +1.6: 

SPY KR Spread

The momentum though was clearly favoring $KR to weaken further against the major index so I decided to wait to sell the spread.  I set an alert at a level of +$5 using the "My Alerts" tab. On June 13, the alert triggered when the spread traded above 5 and I sold a small quantity at $5.04. 

On June 14, the company increased its earning forecast for fiscal year 2012. The spread dropped to -2 on the news and then rebounded to $1 and I sold more at that level. 

This is a spread I will sell more of at any opportunity as it moves back toward its average with the current catalyst.

The trick here is to combine value and a catalyst that will propel the spread to a more normal level. The catalyst is critical to put an end to the momentum that pushed the spread in the overvalued category in the first place.

Where do you see pockets of value on a relative basis? Have you thought about running a statistical test on your stocks versus major indices using our Spread Analyzer?

Written by Michael Bigger. Follow me on Twitter and StockTwits.  

Canon Value Play

Yesterday, we sold the 2 * SPY - 5 * CAJ at 66.78. Here is a short video explaining why we did it.