This is an excerpt from an article I originally published on Seeking Alpha on December 9, 2011. Click here to read the entire piece.)
Juniper Networks (JNPR) is suddenly plunging again. In three days, JNPR has lost 17% and is retesting November’s lows.
Source: FreeStockCharts.com
Over this same period, rival Cisco Systems (CSCO) has essentially remained flat. The resulting out-performance by CSCO has sent the CSCO/JNPR ratio to a 17-month high.
Source: Stockcharts.com
When this ratio closed in on .90 at the end of September, I claimed it was close enough to a presumed high that warranted executing a pairs trade going long JNPR and short CSCO (see “Juniper Networks Hits 2.5 Year Low, Triggers Pairs Trade With Cisco Systems“). JNPR was trading at 2 1/2 year lows, making a bullish position in a pairs trade particularly compelling. Since then I have traded in and out of this pairs trade more frequently than I expected (trades tweeted using the #120trade hashtag), but the end result is that I now only use the profits from the JNPR calls to execute new trades. With the CSCO/JNPR ratio at 0.93, this is another great time to re-initiate the JNPR position (I have held onto the CSCO puts throughout the trades in JNPR calls).
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Be careful out there!
This is an excerpt from an article I originally published on Seeking Alpha on December 9, 2011. Click here to read the entire piece.)
Full disclosure: long JNPR calls and CSCO puts