DRYS, GNK Pair Trade

Blain Reinkensmeyer

Posted on Tue 8th Jan, 2008 12:07:39 AM

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I think I may have stumbled upon a pair trade setup within the transportation shipping industry group, with the two main stocks I am focusing on being DRYS and GNK.

The bet is that since GNK has stumbled through its 200 day moving average, DRYS is sure to follow next. The problem I am having right now is setting up a proper profit vs loss ratio on the short though on DRYS.

DRYS closed today at $67.86, and resistance is now at $70 even but you could see the stock trade as high as say $70.50ish before stumbling back down. A good target price for DRYS would be $61ish, or about 10% below its current price. If I short at say $68 and place a stop cover at $70.50 that is $2.50 on the risk for about $7 on the reward, or about 3 to 1 overall.

Based on intraday charting DRYS has a big tendency to gap at the open, one to three points on average. The play then is this, see if DRYS opens at a gap above $69, short at the open, set a tight stop loss at $70.50ish, and look to maximize the downside. If DRYS gaps down then watch it and look for either a scalp opportunity or the stock to rally up towards $70 to take a short entry. Below are charts of both DRYS and GNK,

DRYS Chart, Click to View

GNK Chart, Click to View

Also want to note real quick here, the industry group has several other stocks that fall into this same exact pattern: QMAR, TBSI, EXM, DSX, and NM.