Pair Trade - Short CNQ and Long XLE

2016年1月31日

This is a pair trade idea based on CNQ/XLE pair cointegration. My calculations show that these two stocks diverged by more than 2 standard deviation and, based on mean reversion, should come back to mean. This pair's rolling mean is 28.3 over the last 280 trading sessions. The current value is 23.6 and one standard deviation is 1.8. The trad can be done by shorting CNQ and going long XLE in the proportion calculated through beta. Alternatively, it can be entered as two credit spreads - bear call spread on CNQ and bull put spread on XLE. This is how I will be entering this trade on Monday when the market opens - CNQ $22/$24 Feb 21 bear call spread for $0.5 cr and XLE $57/$55 Feb 21 bear put spread for $0.6 cr. Will be watching the bear call side and adjust if necessary.

2016年2月3日

註釋

Over the last two days both CNQ and XLE have been going down but if we entered into this trade as a pair trade as described in my previous post we would have made money. The idea was to sell CNQ short and buy $XLE. If we did the trade in equal amounts, say $10,000 per stock (there other ways also) but let's keep it simple. We could buy 171 shares of XLE 2 days ago on 29 Jan on close for $58.21 and sell 470 shares of CNQ on close for $21.26. Yesterday CNQ closed $19.79 and XLE closed $55.33. Both have gone down but we would still make a profit - we would lose $492.48 on the XLE side but would make $690.90 on the CNQ side for a net profit of $198.42.
From an options perspective, we would be showing a small loss - CNQ $22/$24 bear call spread is now worth $0.08 (a profit of $0.42) and XLE $57/$55 bull puts spread is now worth $1.04 (a loss of $0.44). Entering this trade as a pure stock trade would be more profitable at this stage. I will keep updating as the trade progresses.