Lesson Overview

Pairs Hedging

You've likely heard of the concept of "Pairs Trading" but in this video tutorial I want to talk about "Pairs Hedging". I will often use similar or correlated underlying positions to hedge other positions in the same sector or industry.

For example I could use RIG to hedge USO or GLD to hedge GDX or FB to hedge TWTR.

The benefit to doing this is that I am sometimes able to get much better options pricing by using a corresponding ticker in the same industry versus making an adjustment to my current position that may or may not have favorable pricing at the time.

More Discussion

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  • Trent

    Kirk – When you pairs hedge like this are you reducing your upside and downside make each position nullify the other to net zero or close to zero?

    • As close to zero as possible but it doesn’t always happen perfectly.

  • Yes we’d still close any positions that hit our profit target.

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