Hello Investors,
Today discussed the concept of “pairs trading”. This is designed to neutralize market (systemic) risks. And turn trading into more of a stock picking ability to determine profitability. We choose a Tech short and Energy long as follows.
Bought a put butterfly in Palantir (PLTR).
Buy to open: PLTR Jan 16th (monthly) 165.00 strike put (ratio of 1)
Sell to open: PLTR Jan 16th (monthly) 145.00 strike put (ratio of 2)
Buy to open: PLTR Jan 16th (monthly) 125.00 strike put (ratio of 1)
Debit: 3.85
Max risk = 3.85 or $385.00 per spread
Max reward = 16.15 or $1,615.00 per spread
Bought 3 contracts of call butterfly spreads in Energy ETF (XLE).
Buy to open: XLE Jan 16th (monthly) 92.00 strike call (ratio of 1)
Sell to open: XLE Jan 16th (monthly) 97.00 strike call (ratio of 2)
Buy to open: XLE Jan 16th (monthly) 102.00 strike call (ratio of 1)
Debit: 1.15
Max risk = 1.15 or $115.00 per spread ($345.00 at risk for us with 3 contracts traded)
Max reward = 3.85 or $385.00 per spread ($1,155.00 of reward for us with 3 contracts traded)
Have a great week!