Pair Options Trading

Pair Options Trading is based on the theory that certain assets have shown overtime to have their price move very close to the same length over the same time frame as another asset; this is called correlation of the pairs. Pair options trading is a new variant of binary options trading that is perhaps one of the most interesting ways to trade binary options.

Pair options trading is nothing but determining how one instrument trades in relation to others. As the name explains, Pair options combine two instruments either within an asset class (such as Google vs. Apple) or instruments between different asset classes (Gold vs. Apple).

The relative amount of correlation between two pairs when it comes to trading is addressed as a percentage. Of course, the ideal correlation between the movements of the two assets is 100%, but unfortunately, you will never see this. 100% correlation means as one asset moves over time up or down in price, so its pair moves ‘exactly’ the same. Of course, at the opposite end of the spectrum, there can be zero correlation between asset pairs if they move in opposite directions all the time.

Why is correlation a useful parameter on which to base a trade on? The answer is because it has a predictive nature to it when analyzing and monitoring favorable factors for placing a trade. Two assets that often correlate together send a strong signal to place a trade when one starts to deviate from the other.

This market neutral strategy, pair options, seeks to fully capture all the benefits that close correlation has to offer. When investors see a break in the movement of two highly correlated assets, they can place both a put option on one asset and a call option on the other asset at the same time. Pair Options Trading

Chances are that at least one of the trades will be profitable for them if they do this. One nice thing about pair options is they can be profitable regardless of which direction the market is trending in. Many trading sites allow you to select assets that can be tracked according to the correlation between them. Analysis of this can directly lead to finding profitable trading opportunities.

In case you were wondering, the entire concept of pair options trading is not a new concept by any means. It has been used by traders as a market neutral strategy for many years because it has proven to be reliable and effective. Many closely related strategies have been formed from using the basic premise of pair options strategy too.

So now that this information is available and ready to use, take some time to examine it. If you read more on the subject of pair options trading, you will see that the correlation between many pairs has already been figured out for you. That should make it easy for you to spot the uncorrelated movement between the pairs and place your profitable put and call options exactly where they need to be.

Pair Options Trading