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I’ve heard people doing spread trades when they think one stock will do better/worse in comparison to another stock or index. I’m looking for details on exactly how this is done.

Is there a particular trading mechanism that would allow for:

Make money if X stock goes down in relation to e.g. S&P 500?

I would also add that I’d like the losses to be limited to the amount of investment (not unlimited) in case X outperforms the market.

Ideally looking for a way to trade where I would make money if X goes down even if the entire market / S&P 500 also goes down, as long as X goes down more (probably in terms of %)

Is this possible? Specifics of mechanics appreciated.

philfreo
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Any mechanism that allows you to position yourself in this relationship between stock A and stock B can be performed with a reasonable proxy for the performance of any index that has an associated ETF. The relationship isn't 1:1, but it's close enough for the overwhelming majority of cases.

For the S&P 500, SPY is the obvious proxy and has an options chain. Otherwise the related questions answer you. Especially "How do I bet one stock will outperform another stock?"

William Walker III
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