Darrell -
I’ve been experimenting in my Demo account the idea of Using a Relative Value Arbitrage (Pairs Trade) strategy with the US 500 and Wall St 30 Daily Binaries. I would sell at/near the money contracts on one index, and buy at/near the money contracts on the other, and then hopefully take advantage of divergence that occurs between the two indices after I take the position. I would be spending $100 or less on each Strangle/Pairs Trade.
The risk in the trade if if I pick the wrong Buy/Sell combination (i.e. AFTER I take the position, the Index I BUY under performs relative to the other, and the Index I SELL out performs relative to the other). In that case, I could lose the entire $100 if I hold through expiration, although I’d probably cut my losses in this scenario rather than risk losing everything.
Conversely, I could potentially win on both sides and get $100 back on both sides ($200), and thus make a $100 profit on my $100 investment, for a 100% profit. That is if I hold through expiration. If this case, I would need to pick the correct Buy/Sell combination (i.e. AFTER I take the position, the Index I BUY out performs relative to the other, and the Index I SELL under performs relative to the other). I would also have the option of taking my profits before expiration.
This is a flat market strategy, as if the market moves significantly in either direction, I wont make a profit, but so long as it moves out of the narrow range of this Strangle, I would at least break even and not lose money.
I know this strategy is a bit complicated with a number of moving parts, but understanding the risks, I’m wondering if this is viable.
Thanks.