ASX Stock Pairs Trade Journal

[skc]

Looks like October was a good month for us all, Nov I'm out of action due to a long needed holiday. While travelling what came to my mind is that it's quite feasible to trade the ASX while living in another country, especially in Asia, it's only a 7 to 1 shift and I can be off to enjoy the cheap eats and great night life.

Perhaps a Tim Ferris inspired 4-hour work week would fit this business well. I think there is a term like "geographical arbitrage" where you sell your product skill where it can fetch the most money, while drawing your supplies from the cheapest location and then also living somewhere cheap. For memory the example in the book I am referring to was to sell clothes in America by importing from China all the while living in Mexico.

You guys are obviously single with no kids

 

[VSntchr]

You guys are obviously single

Actually, its my partner who drags me around

with no kids

This part you nailed!

 

[SilverRanger]

You guys are obviously single with no kids

You're spot-on Just out of curiosity, do you know any traders pursuing this path? I mean the ones who even changed their tax residency out of Aus, I would really like to know how they went about this

 

[VSntchr]

PTF has gone wacky this morning. It started out working fine, but at about 11am the prices reverted to yesterdays close and are not updating...am I solo in this problem or is it Yahoo feed related?


As for pairs, the AREITs are proving quite unpredictable for me this month. ABP is outperforming, IOF seems to have had its takeover speculation cool off a bit and MGR is underperforming...perhaps the market wanted and upgrade yesterday. Not that I usually have the ability to pen the direction of these stocks, moreso that they are not complying with my expectations of mean reversion.


All-in-all, unless the last week throws up some good trades and some reversion in the ones I have open I may have my first down month in quite a while.

 

[skc]

PTF has gone wacky this morning. It started out working fine, but at about 11am the prices reverted to yesterdays close and are not updating...am I solo in this problem or is it Yahoo feed related?

Same ehere.

As for pairs, the AREITs are proving quite unpredictable for me this month. ABP is outperforming, IOF seems to have had its takeover speculation cool off a bit and MGR is underperforming...perhaps the market wanted and upgrade yesterday. Not that I usually have the ability to pen the direction of these stocks, moreso that they are not complying with my expectations of mean reversion.

Agree..REITs are trickier than usual. I put it down to the AGMs even though nothing too dramatic was said in any of them. May be the market is just recalibrating the expectations on some of these names.

All-in-all, unless the last week throws up some good trades and some reversion in the ones I have open I may have my first down month in quite a while.

Was having a reasonable month run until I stuffed up two trades. Had WOW/MTS and closed it yesterday basically at the bottom (look where it is a today ). And opened a position in CDD/DOW yesterday and bam! Profit warning the next morning. Thankfully the position was very small... but still hurts a lot.

These two combined means that this week's loss just about erased last week's solid gains. So a good 2 weeks of nothingness.

 

[VSntchr]

Well it didn't turn on all day so I was left pretty redundant, had a few opportunities that I was manually calculating..but didn't take any..except for a small STO/OSH this morning. The oilers are usually mean to me, hence the small size.

Was having a reasonable month run until I stuffed up two trades. Had WOW/MTS and closed it yesterday basically at the bottom (look where it is a today ).

Bugger. That reversion just got better all day...sucks missing out by one session.

Interestingly, I traded MTS for the first time ever last week..I think I had it with TGR though.

And opened a position in CDD/DOW yesterday and bam! Profit warning the next morning. Thankfully the position was very small... but still hurts a lot.

It's times like this when you need someone to join in on the
I saw the drop this morning and was a bit shocked at how far it fell...I mean surely the market didn't expect them to be increasing earnings this year? I guess any excuse to short in this environment will do.

 

[skc]

Well it didn't turn on all day so I was left pretty redundant, had a few opportunities that I was manually calculating..but didn't take any..except for a small STO/OSH this morning. The oilers are usually mean to me, hence the small size.

STO investor day Wednesday... and this headline from the news wire.

2227 GMT - Santos (STO.AU) holds its eagerly anticipated investor day next Wednesday,
during which analysts will look for signs its company-transforming US$18.5B GLNG venture
in Queensland state with Total (TOT) is on track for completion next year, in line with
its upwardly revised budget. "We expect Santos will refine its GLNG start-up date to
the second-half of calendar 2015 from current guidance of 2015," JPMorgan says.

I am guessing that's why OSH jumped much more than STO and ORG. OSH's capex is done and on an upward production profile... While STO and ORG still have their LNG project under construction and subjected to associated risks.

Bugger. That reversion just got better all day...sucks missing out by one session.

This was just a BAD trade. I was in a loss and I basically panicked out of the trade like a little rabbit. This is the area I've struggled all year... build up higher risk tolerance in line with my position size.

It's times like this when you need someone to join in on the
I saw the drop this morning and was a bit shocked at how far it fell...I mean surely the market didn't expect them to be increasing earnings this year? I guess any excuse to short in this environment will do.

I am OK with this trade. I followed all the risk management rules. Overall position size was <10% of what I'd put on a full-sized pair. Mining services is a sector that I've been mostly avoiding, and I only put it on because they both had their AGM very recently and the chance of a downgrade was slim. It was just bad luck, but not a bad trade.

At their AGM, CDD hinted at a decent year ahead so to adjust estimates so soon was a shock and hence very deservingly punished by the market.

P.S. I think the PTF problem today came from Yahoo's end. Yahoo's website was updating, but another application that I use (TopShare Portfolio) also fetches prices from Yahoo and that wasn't working either. It seems to be working now nonetheless.

 

[skc]

You're spot-on Just out of curiosity, do you know any traders pursuing this path? I mean the ones who even changed their tax residency out of Aus, I would really like to know how they went about this

Not really. My brother-in-law works in Singapore as a self employed dude doing whatever he does. I think the only requirement is that he needs to leave the country every 3 months... which is esily done just crossing the boarder to Malaysia, have lunch there and coming back.

But that's all I know and could be wrong. You might get better infromation on some ex-pat forums or government websites.

 

[spec]

Personally I do not use it specifically as a trade filter, but I would think that some people on ASF would.
Do you trade pairs? How do you find trades?

I use COINT exclusively these days to find pairs
Actually I trade triplets (basket of 3 stocks. Also tried quadruplets, i.e. 4 stocks baskets but profit potential was too small)

What I found using COINT is:
-it works a little bit better for me than correlation
-it allows you to go beyond pairs easily
-it does not allow you to build a money printing machine. Nothing replaces the usual routine: fundamental analysis, following news, knowing the business, industry, market etc.
-COINT can spit out baskets that have a strong exposure bias (see below), i.e. not capital neutral. But it can play to your advantage if you're a good directional trader.

Here's an ugly trade. I was too short dollar, i.e. betting against the bull market. In addition I forgot to take into account the ExDiv of one of the stocks, and now the div chasers are killing me

100*D-67*DTE+148*TE


Here's a nice basket that I have traded successfully

100*XLU-46*AEE-21*ETR


All the underlyings are US utilities stocks.

 

[Atari rose]

Gentlemen, Ladies, Pair trader, skc and of course silver,

Have read the whole thread a couple of times and now find myself in a position to give this a run. Have the capital and a head full of dreams so we will be keeping this tread alive for a while I fear.

Would like to thank the people who have contributed to the tread - its not often you learn something new from the internet, I will buy you a beer if you ever around my way.

I will try and do the research today and post a possible trade up tonight. Please be rough with me its the only way I seem to be able to learn and there is a zero chance that I will be offended.

Look forward to getting to know you a bit better..

 

[Atari rose]

Ok time for the weekly update,

I have a regular job so have been doing this in time off etc.. and started with a demo account.

stared off OK

Challenger CGF $6.43 $9,031.00 $7.10 $909.00 10.1%
Henderson HGG $4.12 9,888.00 $4.06 -144.00 -1.5%

IOOF $9.18 5,049.00 9.14 5,027.00 -22.00 -0.4%
Newcrest mining (short) $10.37 5,703.50 10.60 5,830.00 126.50 2.2%

Oil search (short) $8.56 1.2%
Santos $11.94 -2.4%

Altogether not a bad week, I also did some really stupid stuff like going long and short on the same stock! Brain dead!!!

still ended up with roughly 1K up for the week.

 

[VSntchr]

Ok time for the weekly update,

I have a regular job so have been doing this in time off etc.. and started with a demo account.

Altogether not a bad week, I also did some really stupid stuff like going long and short on the same stock! Brain dead!!!

still ended up with roughly 1K up for the week.

You are lucky you got out of Challenger before today!
What made you go long and short the same stock? Were you entering multiple pairs? or just fat finger/error trades?

$1k for the week is pretty good, especially if you have other employment...
Good to see other pairs traders posting...


I've had a decent week with lots of opportunities starting to appear, the profits have yet to flow for me though.
I'm seeing opportunities in a number of sectors today, Infrastructure, Transport, Building, Media and REITS...hopefully this bodes well for a good start to December before I take 2 weeks off to go :bowser:

 

[skc]

Ok time for the weekly update,

Challenger CGF $6.43 $9,031.00 $7.10 $909.00 10.1%
Henderson HGG $4.12 9,888.00 $4.06 -144.00 -1.5%

IOOF $9.18 5,049.00 9.14 5,027.00 -22.00 -0.4%
Newcrest mining (short) $10.37 5,703.50 10.60 5,830.00 126.50 2.2%

Oil search (short) $8.56 1.2%
Santos $11.94 -2.4%

Altogether not a bad week, I also did some really stupid stuff like going long and short on the same stock! Brain dead!!!

still ended up with roughly 1K up for the week.

Great start. There will be mistakes no doubt. I think I once went long on both legs...

Not sure I'd pair IFL with NCM, they are pretty different beasts. A "wild" stock like NCM will have high cointegration with a more stable one, but it really doesn't mean they are fundamentally cointegrated.

I've had a decent week with lots of opportunities starting to appear, the profits have yet to flow for me though.

Had the busiest day ever today in terms of volume... but made no money! Let's see if there is mean reversion next week. The oil stocks are getting like gold and iron ore at these levels... i.e. margins and balance sheet start to matter a lot. See how STO performed differently to OSH. I hope oil price would rebound soon so the once good oil sector doesn't become too hard to trade.

 

[VSntchr]

Had the busiest day ever today in terms of volume... but made no money! Let's see if there is mean reversion next week. The oil stocks are getting like gold and iron ore at these levels... i.e. margins and balance sheet start to matter a lot. See how STO performed differently to OSH. I hope oil price would rebound soon so the once good oil sector doesn't become too hard to trade.

TELL ME ABOUT IT!! I haven't had a day off all year (financial year)..and I had to take yesterday afternoon off...talk about horrendous timing
I did manage to get 2 trades open though so it wasn't a complete waste...and had to scratch APA/TCL as TCL fell before I got set...

As for the Oilers, I tend to be horrible at trading this sector and therefore I try to stay away...or play it with about 5-10% max size...I just don't have the run-down of these companies sorted like you!
Lots of people are starting to talk about oil stocks and are getting interested, presumably for swing strategies...but I just keep looking at iron-ore and gold stocks and get put off even thinking about attempting to ride a bounce. Pairing it fundamentally (and statistically if they both align) would of course be the go...but I have yet to put in the work to figure out what to buy and what to sell.

 

[VSntchr]

The oil stocks are getting like gold and iron ore at these levels... i.e. margins and balance sheet start to matter a lot. See how STO performed differently to OSH. I hope oil price would rebound soon so the once good oil sector doesn't become too hard to trade.

Looks like Credit Suisse is thinking your fears will be confirmed

From SMH: Credit Suisse analysts believe the current oil price environment will “truly distinguish the haves and the have nots (in the Australian oil & gas/exploration & production sector) on strong balance sheets, margins and growth projects.”

 

[skc]

Looks like Credit Suisse is thinking your fears will be confirmed

From SMH: Credit Suisse analysts believe the current oil price environment will “truly distinguish the haves and the have nots (in the Australian oil & gas/exploration & production sector) on strong balance sheets, margins and growth projects.”

I am not certain they are "my fears". I am just going off what other analysts have said... so not claiming credits for being ahead of the market or anything remotely like that.

I can understand STO falling, but I can't get why LNG is still worth so much.

It's a case of 1 project on paper barely started is better than 1 project 85% finished.

 

[VSntchr]

Not sure if this has been the result of the TOL asset sale announcement or perhaps that TOL is favoured more than AIO from a lower oil price.

Nonetheless, the divergence is the biggest I've seen for this pair for a while. I have a small position on but am a bit cautious about scaling in further as I think I may have underestimated the impact of the TOL announcement.

 

[skc]

Not sure if this has been the result of the TOL asset sale announcement or perhaps that TOL is favoured more than AIO from a lower oil price.

Nonetheless, the divergence is the biggest I've seen for this pair for a while. I have a small position on but am a bit cautious about scaling in further as I think I may have underestimated the impact of the TOL announcement.

Just closed this trade yesterday as my largest loss ever!!!

I felt bad the moment I put it on. It was one of those "macro is against you" trade, and I should have trusted my gut and close it out way earlier.

As you said, the low oil benefits TOL more (at least on perception) than AIO, the asset sale is leading to talks of capital return (although not announced) which the market loves without question (if you want your capital back that badly, why invest in that company!), and AIO has large exposure to coal... the use or pay contracts can really bike if it forces all coal miners into bankruptcy.

Having said that... TOL looks like it was going to roll from the high as of today.

Anyhow, I am always happy to close a large losing trade... it really helps to build risk tolerance

P.S. I am more annoyed that I didn't open a trade long BKN short DOW yesterday... it was going to be the trade to open today. Why can't they wait another day to announce the deal?!

 

[VSntchr]

Just closed this trade yesterday as my largest loss ever!!!

I felt bad the moment I put it on. It was one of those "macro is against you" trade, and I should have trusted my gut and close it out way earlier.

As you said, the low oil benefits TOL more (at least on perception) than AIO, the asset sale is leading to talks of capital return (although not announced) which the market loves without question (if you want your capital back that badly, why invest in that company!), and AIO has large exposure to coal... the use or pay contracts can really bike if it forces all coal miners into bankruptcy.

Having said that... TOL looks like it was going to roll from the high as of today.

Anyhow, I am always happy to close a large losing trade... it really helps to build risk tolerance

P.S. I am more annoyed that I didn't open a trade long BKN short DOW yesterday... it was going to be the trade to open today. Why can't they wait another day to announce the deal?!

I assume largest loss is due to scaling up rather than biggest % loss?
Its not looking great for me either - not in largest loss range..but not expecting it to get back to profit.


Ahh bummer missing the BKN/DOW trade!!! Funny watching the BKN intraday chart...it was like: woohooooo takevoer...oh noooo they mentioned capital raising....but who cares they are using it for growth

 

[skc]

I assume largest loss is due to scaling up rather than biggest % loss?
Its not looking great for me either - not in largest loss range..but not expecting it to get back to profit.

Not that big percentage wise. It was a bad trade to put on...

Ahh bummer missing the BKN/DOW trade!!! Funny watching the BKN intraday chart...it was like: woohooooo takevoer...oh noooo they mentioned capital raising....but who cares they are using it for growth

Took a bite on open, sold for 12c profit when it's clear that no one is rushing to think it's a done deal. Nibbled the rest of the day away, although should have gone in hard when it went down to $4.11.