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Hedge Your Bets With These Two ‘Pairs Trades’

Nothing beats a healthy competition and pitting one company against another could bring healthy returns!

Huh?

We're talking about pairs trades.

Wait! What’s a pairs trade?

It’s a strategy of matching a long position with a short position in two stocks of the same sector. Essentially when you put on a pairs trade you’re betting that one stock is outperforming (too rich) while another is underperforming (too cheap).

Sounds simple enough. Now what’s the trade? Steve Cortes (aka el Capitan) has two!

Pairs Trade #1: Long Goldman, Short JPMorgan

I'd own Goldman as a best-of-breed play and short JPMorgan because they have a great deal of exposure to the consumer, says Cortes.

Pairs Trade #2: Long SPY, Short XLB

I do not believe in the materials story, explains Cortes. As a result, I’m a seller of the Materials SPDR and a buyer of the broad market.

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Trader disclosure: On Aug. 26th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Terranova Owns (AMZN), (MSFT), (SU), (XOM), (WFT); Terranova Owns (CCL) Puts; Terranova Is Short (SHLD), (EES); Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Cortes Owns (SPX), (GS); Cortes Is Short Nasdaq 100; Cortes Is Short (JPM); Najarian Owns (BAC); Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (HGSI) Call Spread; Najarian Owns (INTC) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (TXT) Calls; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread