One of the cornerstone trading strategies employed in the POWR Options program is a pairs trade. This involves taking a bullish stance on a stock you expect to outperform and a bearish position on a similar stock that is expected to be an underperformer. The pairs trade was first used by Alfred Jones in the early 1950s. His classic example was buying GM and shorting Ford. It has come a long way since then.
Instead of buying the stock you expect to outperform, POWR Options buys a bullish call option. Similarly, instead of shorting the stock that you feel is going to underperform, one would buy a bearish put option. This use of options in place of stock is much more affordable at trade inception, as we will see later. It also defines the risk to the overall combined premium paid.
