Increase Your Paths to Profits

Increase Your Paths to Profits

Jul 12, 2021

By Frank Kaberna

In 2021, one idea simply isn’t enough. It’s not just McDonald’s, but McDonald’s x BTS*. It’s not just Nike, but Nike x Ben & Jerry’s*. It’s not just Looney Tunes, but Looney Tunes x HBO x Lebron James*.

Pairs are the brand collabs of trading. In the same way that you might watch Space Jam for the Tune Squad even though you aren’t a Lebron fan, spreading a short stock position off against long yields can win even if stocks move higher.

Blip or Tip (of the Iceberg)?

The stock market hasn’t sold off significantly since the early part of 2020, but it’s witnessed countless blips that have been bought up in the meantime. Could last week’s fall finally be the start of a crash? Sure! But how do you know if this is the time to sell stocks?

SM75 \ Small Stocks 75 Index

SM75 \ Small Stocks 75 Index

Source: dxFeed Index Services (https://indexit.dxfeed.com)

More Paths to Profits

Trading one market from the long or short side may have the same probability of profit as a pairs trade incorporating that market and one other, but the permutations of positive results are much higher for the pairs trade.

SM75 vs S30Y \ Stocks vs Yields Indexes

SM75 vs S30Y \ Stocks vs Yields Indexes

Source: dxFeed Index Services (https://indexit.dxfeed.com)

For instance, you could sell equity index futures if you think stocks are headed lower. Or, you could do so while buying relatively cheaper but highly correlated yield futures. Now, instead of your only path to profits being lower in stocks, you can win in several scenarios.

Paths to Profits

Though adding more angles to something may seem complicated or “extra,” it can present you with more opportunities to either enjoy fast food or profit from a premonition.

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*https://www.mcdonalds.com/ca/en-ca/deals-and-promotions/bts.html

*https://www.nike.com/my/launch/t/sb-dunk-low-x-ben-jerry's-1

*https://www.spacejam.com/

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