AVB trade ideas
Avalon Bay (AVB) lagging Vail Mountain Resorts (MTN)PAIRS TRADE:
I have mentioned this pair of stocks before and the disparity continues to grow. I was short MTN for awhile and took my loss and I was long AVB and booked a few small gains. Net-net I broke even, but I have watched this divide continue to widen this year. Sometimes I think year-end makes people make decisions or change their minds, but I suppose with a strong winter-season upon us that investors are focusing on Vail to make a bundle (along with their many other fine ski resort properties). Meanwhile,Avalon Bay languishes in the far more boring world of providing basic shelter for people on the move and those in transition in life. In the past, AVB was a good foreshadower of trouble ahead for MTN, but so far the red-light warning continues to shine.
Strategically, risk 5% to make 5%-10%. Short MTN, Buy AVB.
Cheers.
Monday, Dec 16, 2013 10:17 AM EST
Vail Mountain Resorts versus Avalon Bay CommunitiesNotice the last four times that MTN surged ahead of AVB and you can see what happened afterwards. It's time to research into the history of the movement of these two stocks to calculate what drives the investor sentiment. But from what I can see here, this is a great trade setup. Now we need a trigger to get us into the trade and then risk parameters before we take a trade.
This chart is so interesting on the 10-year basis that the picture alone was worth a thousand words. But I saved you from reading those thousand words since I think the picture shows it.
If you plot the ratio of these two securities (you simply type AVB/MTN in the quote box window here at TradingView) you will see that the ratio has fallen back to the levels where it has bottomed massively before.
If you can risk 3 average daily ranges, in either one of these stocks, then that is what the risk will be set at. I don't have the exact trigger for this trade yet, but I wanted everyone to see what I am looking at first before jumping in too soon.
I think there is a 10%-20% return in this trade with risk that is less than 6%. This implies a 2:1-3:1 return versus risk. I think the probability of this setup being profitable is north of 50%, looking more towards 60%. Just my sense. It's not much better than flipping a coin, but I like my odds overall.
Cheers,
Tim 12:27PM EST Wednesday, August 28, 2013
