Pair options trading
Last modified: 10th February 2019
Your capital may be at risk. This material is not investment advice.
Pair options trading first came into the limelight in 2010, when the stock pair was launched. Since its inception, it has gained unmatched popularity as well as wide acceptance among traders in South Africa as well as the world. This popularity brought about a software dubbed pairs trading software that seemed better than the stock pair platform. Most of the renowned digital options brokers have amalgamated their digital options boards with some capability of pairs trading.
IQ Option has proved to be a reliable digital options trading partner in South Africa. This is because most of the traders rely on the information availed by the site so as to be able to know the most profitable pairs to trade in.
An overview of pair options trading
All the types of pair options contracts have some fundamental characteristics in common, which make them assume the name “pair options”. Pair options trading, according to IQ Option, is the easiest mode of trading for a pair of essential assets. More often than not, a majority of the assets that are paired are picked from a common sector.
However, this may not always be the case. The only issue that needs to worry a trader in South Africa is the relative performance, making pairs trading a neutral kind of trading. The simple interpretation of this is that the market conditions are not inconsequential to the performance of the options that a South African trader chooses.
Highlights of pair trading options
- A trader is assured of high returns to the excess of 350% for every trade.
- Precise management of risk.
- It is simple to learn and to trade as well.
- It is a good choice for circumventing other trading instruments.
- The market instruments are entirely neutral.
- It offers the traders, simple and reliable trading strategies.
When a trader decides to try and venture into options trading, then he is poised to understand more highlights of the trade. Moreover, other tricks of the trade emerge as one gets acquainted with the normal operations of the market. Traders in South Africa have an upper hand over their counterparts in other countries since IQ Option explores every realm of pair options trading for them. This increases a trader’s chances of raking in profits from a given digital trade.
How pair options trading works
The majority of the digital options traders can attest to the fact that digital options trading is an effectual way to realise maximum profits and also to minimise the losses. Moreover, a trader who is proficient enough in digital options trading is not prone to hefty losses since he or she knows when to exit a trade and when to enter. Trading in pair options involves trading in opposite directions whether using similar assets or different ones. Pair trading strategy has similar effects to the straddle effect even though pairs do not have to be of similar assets. This makes pair trading a strategy on its own.
Advantages of pairs trading
The profits of a trade are protected
The risks of the trade are minimal
The income that a trader anticipates could be doubled.
The pair options trading strategy can be applied to various asset types such as stocks, commodities and forex. A trader in South Africa can trade on a singular asset or multiple assets. Pair options trading can be summarised in two approaches depending on the type of asset that a digital options trader wishes to trade on. The two approaches are competitive and single-asset pair trading. Single-asset approach makes use of a put and a call option on a singular asset at dissimilar times while the competitive pair options trading buys a put and a call option on two rival companies.
Even though the two options are simple to comprehend for any trader in South Africa, there is a need for thorough research, more so for competitive pair approach. An exploration of each approach is given below.
Single-asset pair trading
A trader in South Africa can apply this strategy to any asset, but it works better when used on commodities and forex. The pair trades in single-asset pair trading are executed at dissimilar times, but the time of expiration has to be the same. This gives a digital trader a chance to minimise losses and increase profits and possibly to double the expected amount of profit.
The amount invested and the time of expiration must be the same for the two trades so that the strategy can work. Most of the South African traders have executed this strategy in their quest to ensure that their investment bears a positive outcome. The barrier that the strategy creates makes it simple for a trader to enjoy maximum returns while at the same time, cushioning the trader from suffering losses.
This strategy has also been given the name Competitive Relative Value (CRV) trade strategy. It was developed so as to help traders in South Africa to benefit from movements in prices of two companies stocks. The two companies compete with each other and they also operate within similar sectors of trade. Some of the companies that make use of this strategy are JPMorgan/Goldman, Shell/Exxon and Apple/Samsung. All the parameters of the trade, such as original investment and expiry time, should be similar so that the strategy can have maximum impact.
Please be advised that certain products and/or multiplier levels may not be available for traders from EEA countries due to legal restrictions
Pair options trading has its own ups and downs just like all other styles of trading. It is not a 100% assurance that it is the best. The use of a mathematical correlation between two stocks or more is the backbone of pairs trading. The relationships that exist between various sectors of trade are analysed through the use of probabilities, statistics, technical analysis and fundamental operations.
It is critical for a trader to try and establish a strong correlation that could exist between various financial instruments so as to be able to analyse further and make an informed decision. Successful traders in South Africa have always found advice from the analysis given by IQ Options valuable. Trading in South Africa always puts traders one notch above the rest since there is a backing of expert analysis with them.