Alpha Trading – Profitable Strategies That Remove Directional Risk + Website

<p>Preface ix</p>
<p>CHAPTER 1 Uncertainty 1</p>
<p>Impact on Trading 2</p>
<p>The Inevitable Price Shocks 3</p>
<p>Why So Much about Price Shocks? 9</p>
<p>Complexity and Contagion Risk 10</p>
<p>The Ugly Side 11</p>
<p>Taking Defensive Action 11</p>
<p>Accepting Performance for What It Is 13</p>
<p>CHAPTER 2 The Importance of Price Noise 15</p>
<p>Noise Explained 15</p>
<p>Different Markets 19</p>
<p>A Closer Look at Equity Index Markets 21</p>
<p>Importance of Noise 22</p>
<p>Determining the Strategy 25</p>
<p>Capitalizing on the Trend of Noise 29</p>
<p>CHAPTER 3 Pairs Trading: Understanding the Process 31</p>
<p>The Process 32</p>
<p>The Basics 32</p>
<p>Target Volatility 54</p>
<p>Home Builders 65</p>
<p>Using ETFs 78</p>
<p>Portfolio of Home Builder Pairs 84</p>
<p>Execution and the Part–Time Trader 89</p>
<p>Stop–Losses 89</p>
<p>Trading Intraday 90</p>
<p>Key Points to Remember 90</p>
<p>CHAPTER 4 Pairs Trading Using Futures 93</p>
<p>Futures 94</p>
<p>Mechanics of a Pairs Trade in Futures 97</p>
<p>Inflation Scares 100</p>
<p>Trading Energy Pairs 102</p>
<p>Revisiting Momentum with Energy Markets 105</p>
<p>A Miniportfolio of Natural Gas Pairs 112</p>
<p>The Inflation Pairs: Crude, the EURUSD, and Gold 119</p>
<p>Equity Index Pairs 128</p>
<p>Leveraging with Futures 138</p>
<p>London Metals Exchange Pairs 141</p>
<p>Volatility Filters 153</p>
<p>Interest Rate Futures 154</p>
<p>Summary 154</p>
<p>CHAPTER 5 Risk–Adjusted Spreads 155</p>
<p>Dell and Hewlett–Packard 155</p>
<p>Trading Both Long–Term (Hedged) Trends and Short–Term Mean Reversion 159</p>
<p>Gold, Platinum, and Silver 161</p>
<p>The Platinum/Gold Ratio 163</p>
<p>Implied Yield 170</p>
<p>The Yield Curve 174</p>
<p>Trend Trading of London Metal Exchange Pairs 179</p>
<p>Summary 184</p>
<p>CHAPTER 6 Cross–Market Trading and the Stress Indicator 187</p>
<p>The Crossover Trade 188</p>
<p>The Stress Indicator 189</p>
<p>Gold, Copper, and Platinum 195</p>
<p>Mining Companies 198</p>
<p>Agribusiness Pairs 206</p>
<p>The Major Energy Producers 208</p>
<p>Portfolio of Cross–Market Energy Pairs 220</p>
<p>Other Opportunities 226</p>
<p>Some Final Notes 228</p>
<p>CHAPTER 7 Revisiting Pairs Using the Stress Indicator 229</p>
<p>Futures Markets and the Stress Indicator 229</p>
<p>Equity Index Futures 230</p>
<p>Interest Rate Futures 238</p>
<p>The Portfolio Spreadsheet 245</p>
<p>Summary of Pairs Trading 248</p>
<p>CHAPTER 8 Traditional Market–Neutral Trading 249</p>
<p>Home Builders 250</p>
<p>Trend or Mean Reversion? 250</p>
<p>Basic Market–Neutral Concept 251</p>
<p>Volatility–Adjusting the Position Size 264</p>
<p>Arbing the Dow: A Large–Scale Program 267</p>
<p>Thoughts about Market–Neutral Trend Following 274</p>
<p>Market Neutral Using Futures 274</p>
<p>Market–Neutral Comments 277</p>
<p>CHAPTER 9 Other Stat–Arb Methods 281</p>
<p>Trade–Offs 282</p>
<p>System Briefs 282</p>
<p>New Highs and New Lows 290</p>
<p>Merger Arb 290</p>
<p>Creating Your Own Index Arbitrage 292</p>
<p>Arbing the Dow 301</p>
<p>Arbing the S&amp;P 500 Index Arbitrage 302</p>
<p>About the Companion Web Site 305</p>
<p>About the Author 306</p>
<p>Index 307</p>