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Linn Energy, LLC Message Board

  • yelyacs yelyacs Jan 11, 2013 3:24 PM Flag

    LNCO - LINE pairs trade

    with LINE down as much as LNCO is up today, the difference in price between the two reached 1.54, the highest its been since LNCO IPO'd

    so I put on a pairs trade selling LNCO short at 38.54 and buying LINE at 37.0, and will reverse trade when the difference in price reverts back to under a buck (it started the day at 0.70)

    its a market neutral, short term, small gain "reversion to the mean" strategy, with LNCO and LINE are about as close to a perfect pairs trade combo that I can think of

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    • I reentered a new pairs trade at a spread of $1.58

      unlike the "ideal" pairs trade- where the price difference is stuck within a defined range- the minimum of the price difference spread has been trending up ever since LNCO IPO'd (at $4.25 under LINE price)- so I'm looking to exit at a spread near $1.10- unlike my first trade where I closed the spread at $0.97-

      With the VIX ultra-low at 13.27 right now, market volatility at large is low and the width of the channel of the pairs spread is narrowing, also making me want to close the trade at 1.1

      with the intention this will be a very short term trade to repeat frequently, especially when market conditions become more volatile and spreads will expand and contract more forcefully

      • 1 Reply to yelyacs
      • just closed at a spread of 1.17 it may go lower but the high of the day was over 1.7, I.m shooting to re-enter there

        looks like capturing a gain of 0.5 per day or at most a day or two hold is possible if one pays close attention to the near-term channel. Seems like a low-risk way to collect little profits bit by bit

        commissions are an issue but using margin- which is something I usually avoid but feel comfortable doing in this pairs trade (if one blows up they both blow up) - to increase share count
        seems reasonable

    • If you can tolerate the K-1s and the attendant fed and state tax messiness upon selling, then you've made a very nice arbitrage play. However, if you're not a Linn holder of record on the last day of the month, your K-1 will just show a bunch of zeroes and can be ignored. But if you have trust in an accountant, that's a different story.