pairs trades


There is a pairs trade setting up ready to execute, or is there?

GDX:Gold ratio: I’m not going to put up a bunch of timeframes for this chart, because they all tell a similar story: the miners have sucked compared to gold, and there’s a good explanation for that: as various exchange traded products have made exposure to the price of gold easy to come by without the execution risks of the mining sector, the miners have continued to underperform the metal. I was, at one point about 18 months ago, long GDX and short GLD, but I bailed on that trade and have seen no reason to attempt to re-enter it:

That may well be true in part…yet, that is not the whole story. When you buy the miners, you pay for their gold production through your purchase price of the shares. If the share price is discounted enough…you are buying cheap gold and essentially have an arbitrage. It is not a true arbitrage as it is not risk free, far from it. The trade requires that the price of gold and the miners converge.

It is however a market neutral trade in that the price merely needs to converge, and it matters not a jot whether they rise, or fall, just that they converge.

Here is one chart:


Which doesn’t convey as clearly the trading opportunity as this chart:


There lies the trade: Short GLD Long GDX either as stock, or, as Puts/Calls. Either way, you are looking for the convergence.

Long Trannies/Short SPX.

Closed out the GLD/GDX Pair trade. Opened a long in MOS

Progressing nicely.

Trade entered: Short Gold [GLD] Long Miners [GDX]


Long US Steel [X]
Short Century Aluminium [CENX]

I’ve been doing a fair bit of work on a Pairs trading system or methodology. Good opportunities pop-up all the time, frequently enough that you can trade it as a swing system. Of course each trade is actually two trades, so they can both go wrong.

Anyway, for Monday:

Short Gold: GLD
Long Miners: GDX