The Companion Trade

I’m going to be doing a day-trading class in the near future, so I thought I’d talk about one of my favorite setups. It’s a very short-term trade called the “Companion,” or sympathy trade.

When looking at a group of stocks, you’ll notice a particular stock can suddenly move dramatically based on some news or event. Usually other stocks in the group don’t react immediately to the “stimuli” and trader can quickly jump in and make big profits.

Here is an example from my live, pre-market chat before the opening, in $DB.


The “twittersphere” was active with charts showing the rising CDS prices on DB. These are insurance products that hedge against a default of a company, or its debt. DB’s CDS spreads have rising ominously in the last month. After this table got circulated today, DB was subject to a sharp sell-off before the opening.

As seen on the next chart:


Since $GS and $DB have correlated well in the last few weeks. You’ll notice that $DB was trading BELOW its previous Wednesday low in pre-market trading. Also, $GS was looking to open much higher than last Wednesday’s opening.

Therefore, the play, the companion trade, was to short $GS on the opening. This trade, which we mentioned 1 hour before the opening in the live chat, was good for at least 7 points!

This is exactly why the “Companion Trade” setup is one of my favorite setups.

See more from Chris Brecher at Simpler Stocks.

Chris Brecher

Chris Brecher Stock Vice President

Chris Brecher grew up in Jacksonville, Florida. Though he went to college for Paleontology and Marketing, he settled for being a Stock Broker. In watching the brokers in his office lose every time by taking shots in options, Chris wanted to find out who was making money on the other side.

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