The handbook of pairs trading: strategies using equities, options, and futures

272 Pages·2006·2.79 MB·English

by  Douglas S. Ehrman

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The
Handbook
of
Pairs
Trading
Strategies Using Equities,
Options, and Futures
DOUGLAS S. EHRMAN
John Wiley &Sons, Inc.
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The
Handbook
of
Pairs
Trading
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Founded in 1807, John Wiley & Sons is the oldest independent publishing
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ffirs.qxd 12/5/05 3:34 PM Page iii
The
Handbook
of
Pairs
Trading
Strategies Using Equities,
Options, and Futures
DOUGLAS S. EHRMAN
John Wiley &Sons, Inc.
ffirs.qxd 12/5/05 3:34 PM Page iv
Copyright © 2006 by Douglas S. Ehrman. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical, photocopying, recording, scanning,
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best efforts in preparing this book, they make no representations or warranties with respect
to the accuracy or completeness of the contents of this book and specifically disclaim any
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Library of Congress Cataloging-in-Publication Data:
Ehrman, Douglas S., 1976–
The handbook of pairs trading : strategies using equities, options, and futures
/ Douglas S. Ehrman.
p. cm. — (Wiley trading series)
ISBN-13 978-0-471-72707-1 (cloth)
ISBN-10 0-471-72707-5 (cloth)
1. Pairs trading. 2. Stocks. I. Title. II. Series.
HG4661.E37 2006
332.64'5—dc22
2005016417
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
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For the women in my life ...
my daughter, Victoria, the answer to any father’s prayers;
my wife, Veronica, without whom I would be lost; and
my mom, one of the true unsung heroes, who always keeps me going.
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Contents
Introduction 1
PART ONE The Market-Neutral Element 17
CHAPTER 1 Pairs Trading: A Brief History 19
CHAPTER 2 Market Neutrality 27
CHAPTER 3 The Market-Neutral Investment Process 43
CHAPTER 4 Market Neutrality and Pairs Trading 63
PART TWO The Arbitrage Element 73
CHAPTER 5 Arbitrage Factors 75
CHAPTER 6 Arbitrage and Pairs Trading 89
PART THREE The Technical Analysis Element 97
CHAPTER 7 Technical Tools and Indicators 99
CHAPTER 8 The Technicals of Pairs Trading 113
PART FOUR The Unified Theory 123
CHAPTER 9 Reviewing the Elements 125
CHAPTER 10 Trading Pairs Fundamentally 133
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