The latest bout of market volatility has left many traders scratching their heads and wondering which way the market is headed next. One day we see the Dow surge 200 points on strong jobs report expectations, the next day stocks plummet on surging oil prices and an intensification of violence in Libya. The swings are enough to paralyze most traders; however, this kind of volatility doesn’t have to stifle your trading.

There are a variety of strategies that allow traders to take advantage of this kind of volatile environment, and one of the best is what’s known as pair trades. Now, it’s often said that some things just come better in pairs. Well, when it comes to the stocks, this old adage may just prove prescient.

It’s called Project M — and already thousands of traders and investors have grabbed their copy of this eye-opening report that changes the way people are thinking about the stock market. This report gives you a trading strategy to capture REALISTIC profits from the stock market while also PROTECTING your capital. Get Your Copy of the Project M Report Now.

 

Pair Trades Defined

Basically, a pair trade is a strategy of matching up one long position in a stock with a short position in another. The key here is to be long a stock you suspect will outperform the market even in while the general market is suffering from extreme volatility. The second component here is to be short a stock that is likely to underperform the market during periods of wild flux.

Although there are many variations on the pair trade theme, one style of trading is to be long a stock and short a stock that come from the same sector. This strategy of pair trading essentially involves picking a leading stock in a specific sector and going long, while also shorting the laggard stocks in the same space.

Let’s take a look at three pair trades that do just that.

 

Long Dell, Short HP

In the personal computer space, there’s been a distinct divergence of late between rivals Dell Inc. (NASDAQ: DELL) and Hewlett-Packard (NYSE: HPQ). Last month Dell announced earnings that crushed Wall Street expectations, and the recent upbeat numbers have been recognized by traders. DELL shares are up nearly 15% over the past three months. By comparison, HP shares are up just a sliver (0.40%) in the past three months. Though the HP did best earnings expectations in its most recent quarter, its rather lackluster profit forecast gave traders a reason to sell.

This pair trade is long DELL and short HPQ.

Long Verizon, Short AT&T

When it comes to communications giants, not all are created equal. Recently, Verizon Communications (NYSE: VZ) has spanked rival AT&T (NYSE: T), both in terms of share price performance and growth prospects. VZ shares are up 10.5% over the past three months while T shares have fallen 1.26%. The company’s new alliance with Apple (NASDAQ: AAPL) and its iPhone will likely add to its bottom line, while AT&T will surely feel the sting of losing the exclusive rights to the über-popular device.

This pair trade is long VZ and short T.

 

Long Juniper Networks, Short Cisco Systems

The computer networking business is largely dominated by two players, Juniper Networks (NYSE: JNPR) and Cisco Systems (NASDAQ: CSCO). Although both companies have a huge presence in the industry, when it comes to share price performance, JNPR has been the dominant one. The stock is up 28% over the past three months, while rival CSCO is down nearly 3% over the same period. Many analysts think 2011 will be Juniper’s breakout year, as the company embarks on an aggressive expansion campaign that’s directly at Cisco, and that’s designed to leverage the technological push toward so-called “cloud computing.”

This pair trade is long JNPR and short CSCO.

It’s called Project M — and already thousands of traders and investors have grabbed their copy of this eye-opening report that changes the way people are thinking about the stock market. This report gives you a trading strategy to capture REALISTIC profits from the stock market while also PROTECTING your capital. Get Your Copy of the Project M Report Now.

 

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