Scan All: Simple Tool for Hedging Short-Term Trades

Scan All is a simple tool to help you hedge short-term trades. Check out how it works by watching our quick video or reading the summary below the video:

If you are a short term trader, you know that markets move fast.  When you see an opportunity to get into a trade, you need to get in quickly.  Once you are in a trade, you need to manage the risks of the trade quickly as well.  

Let’s say your position quickly moves in your favor, but it is still not quite at your target exit level.  Some traders will look for opportunities to move up their stop-loss.  The problem there, of course, is that you may get stopped out too soon.  Another solution is to find a way to reduce the risk using a hedge.  A good hedge for a long position would be a short position in a stock that tends to trade similarly to your stock.  How do you find such a stock?  That is where our Analyzer comes in.  

Simply go to biggercapital.com/Spread-analyzer, log in, and click on “Scan All” at the top on the right.  Type in your trading position and click on the different tabs to look at different databases.  My Queries will show you pairs you have viewed in the past containing your stock.  Ranked Spreads is a crowdsourced database of other users’ queries containing your stock, along with a rating for each spread.  And Cloudscan is our statistical arbitrage database showing pairs containing your stock.  Each of these tabs can show you potential pairs that will trade similarly to your stock.  

For example, let's say you had just bought GMCR for a short-term swing trade.  If you click on Ranked Spreads, it looks like the most highly rated and most often viewed pairing is DMND.  Click the “View Query” link to see more information about this pair.  If the two stocks trade together pretty well from a mathematical standpoint, short position in DMND could serve as a good hedge for a long position in GMCR.  Entering this short position means you have reduced some of the risks in your long position, and that can allow you more flexibility in managing your profit targets and stop-losses.  

Next time you are working with a short-term trading position, check out our “Scan All” feature to see how easy it is to reduce risk using this quick and easy trading tool.

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

What Is a Spread LSR Alert?

An LSR alert will fire if the most-recent $spread price is outside the boundary created by multiplying the standard deviation of the price series with the supplied "standard deviation multiplier", and then adding or subtracting the least squares regression value at the same point in time.

The Spread Analyzer provides the customers with the ability to create 3 of these alert for each spread.

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

How to Use the Spread Analyzer

Jennifer produced a new video on How to use the Spread Analyzer. In the next few weeks we will add more videos on how to use all the new features we have introduced in the new version of the Spread Analyzer we released this week. Stay tuned!

Jennifer Galperin.  Follow me on Twitter and Stocktwits.

Aris David. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits.

NutriSystem - Note to Self

I am liking the spike I am seeing on the Nutrisystem ($NTRI) chart. There is a ton of value in this situation and the present set up reminds me oF Avon ($AVP). I wrote about Avon right here.

There is a ton of potential energy in the SPY/NTRI spread.

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

 

Cool Video About Basket Trading

Aris David recently sent me this video about basket trading. I think Shawn Cooke did great work in producing this video. For some reasons, his site insidethetrade.net is out of commision. If you know Shawn, let him know that I would love to talk to him. Enjoy this great video!

   

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

  

Beta - Spread Trading Webinar

On Wednesday we held a webinar to discuss the statistical arbitrage trading parameter "Beta".  We had good turnout, and a lot of you requested the replay (at the bottom of this post).  We had some great questions, and I wasn't able to answer them all during the webinar.  One of them in particular I wanted to cover here, because it was quite thoughtful and insightful.  In answering it, I thought about the many interesting ways to look at spread trading.

 

The question was about my selection of spread.  I talked about FDX-UPS, and you can see a chart of the spread here.  This spread is not cointegrating, so the question asked why I had chosen it in a discussion of statistical arbitrage spreads.  I like that spread because the companies are so similar, and I make money trading it when it is statistically cheap or expensive.  I do not worry about the cointegration, because for me the company relationship and the fundamentals are my spring force.  I use the other statistical parameters such as zscore, half-life, and beta in my trading.  

 

The person who asked the question suggested that the 1 year chart showed positive autocorrelation (which to me means it is trending higher).  Betting on mean reversion is fundamentally different from betting on momentum (trends).  Both views can be expressed using spreads.  There is no way to know for sure which way the spread will go in the future.  For this reason, some traders (including me) look at additional factors such as fundamentals or technicals to help predict the future performance.  

 

What do you think of FDX-UPS?  Will it continue to trend higher, or revert back to the mean?  

 

Written by Jennifer Galperin. Follow me on Twitter and StockTwits.

 

Trading the Defense Stocks Spike

Last Friday we traded a basket of defense stocks againts the XLI ETF (Industrial Select Sector). The goal is to take advantage of the spread spike displayed on the right side of the upper graph. The upper graph displays the price of 1000 * XLI minus the basket of defense stocks. 

 

The lower graph displays the value of z-score. The last z-score recorded a value of 4.37 which is an extreme deviation away from the mean.

 

We sold the spike!

 

Defense stocks are trading down on an anticipation that defense spending will be cut dramatically. Gene Epstein at Barron's stated in his latest piece not to believe the hype about defense cuts. 

 

We shall see if he is right or wrong. We view this trade from a purely statistical basis with time and price stops.

 

We have posted the detailed description of the basket in the forum section of our $spread premium product. This is the first time we expose our statistical basket data to the outside world. Dear users let us know what you think. For traders who do not have premium access to our product you can look at spreads between the $XLI and stocks such as $GD, $BA, $NOC and so forth using our spread analyzer.

 

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

Crossing Wall Street Buy List

I do like to run statistical calculations against list of ideas posted by successful traders or investors. One list that I like quite a bit is the annual buy list at Crossing Wall Street. I ran calculation of the SPY versus each stock spread on our Spread Analyzer.

Here are the results:

SPY vs AFL 

SPY vs BBBY

SPY vs CA

SPY vs BCR

SPY vs DTV

SPY vs FDS

SPY vs FISV

SPY vs F

SPY vs HRS

SPY vs JPM

SPY vs MDT

SPY vs MSFT

SPY vs MOG-A

SPY vs NICK

SPY vs ORCL

SPY vs ROST

SPY vs SYK

SPY vs WFC

SPY vs WXS

My favorite spreads from this set is SPY vs MSFT and CA from a value perspective.

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

Two Things I Like About The Avon Spread

I like the amount of potential energy embedded in the 1 * $SPY - 4 * $AVP spread. I also like the $AVP stock price spike that happened this morning.

I am thinking we are about to get a good run in this situation. I am short the spread (short SPY, long AVP) and I am also long the stock outright.

Do you like this spread?

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

 

Align Technology In Play Spread

I am watching this in-play spread this morning. I define the spread as 2 * ALGN - 1 * XPH (S&P Pharmaceuticals ETF). You can view this spread within our analyzer here.

Good one? 

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