Option Pairs Trading | NASDAQ 100 & Russell

• published: 30 Sep 2014
• views: 58

See the latest trading videos: http://bit.ly/1vugsbG The major market indices are usually highly correlated. This means that when one of the indices, such as the S&P; 500 (/ES, SPX), goes up, the other indices, such as the Nasdaq 100 (/NQ, NDX) or the Russell 2000 (/TF, RUT), do as well. When this relationship breaks down, it can provide an interesting trading opportunity. Today, Tom Sosnoff and Tony Battista look at the current relation of the Nasdaq to the Russell. With 1, 3 and 6 month correlations of 0.87, 0.86 and 0.85 respectively, it is interesting to note that the Nasdaq is up 12.6% on the year while the Russell is down 3.5%. The guys then take a look at what happened to this relationship when the S&P; 500 had large moves over the last 14 years. They found that when the SPX was down more than 5% over 30 days, the Nasdaq underperformed during this time. The ratio of Nasdaq to the Russell was down 2.5%. However, when the SPX was up 5% or more, the ratio tended to remain relatively stable, being up only 0.5% Knowing this and seeing that the ratio may be at an extreme, the guys explain how a pairs trade can be placed. Also since Implied Volatility (IV) is high in both indices, the trade can be placed for a higher credit and placed looking for a reversion to the mean level of the ratio. ======== tastytrade.com ======== Finally a financial network for traders, built by traders. Hosted by Tom Sosnoff and Tony Battista tastytrade is a real financial network with 8 hours of live programming five days a week during market hours. Tune in and learn how to trade options successfully and make the most of your investments! http://goo.gl/EaF69C Subscribe to our YouTube channel: http://goo.gl/Szl24S Watch tastytrade LIVE daily Monday-Friday 7am-3pmCT: http://goo.gl/EaF69C Download our mobile app, Bob the Trader: http://goo.gl/zgIyco Follow tastytrade on Twitter: https://twitter.com/tastytrade Become a fan of tastytrade on Facebook: https://www.facebook.com/tastytrade Follow tastytrade on LinkedIn: http://www.linkedin.com/company/tastytrade Follow tastytrade on Instagram: http://instagram.com/tastytrade Follow tastytrade on Pinterest: http://www.pinterest.com/tastytrade/