PAIRS TRADE: Buy RDS.A, Short XLE 13% Spread
BUY RDS.A (lagging by 13% over 18 months) 65.65 last
SELL SHORT XLE (ahead by 13% over 18 months) 79.27 last
Tight correlation for the last year and a half and lately Royal Dutch Shell has lagged by 13%. With a large dividend yield, north of 5%, providing some valuation support, this spread could close for a gain of 13%. However, I will look for half of that gain or 6.5% and I think risking 5% to capture this profit opportunity.
March 26, 2013 3:13PM EST