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I have read 3 of Jeff's books recently and find them very informative. However, I find some of it to be very hard to put into practice and also some of it to be very backwards looking. One very notable exception is the volatility trades that we do here prior to earnings. That advice works out well and is applicable. One example I'd like to understand is mentioned in two of his books, The Volatility Edge in Options Trading on page 253 and Microsoft Excel for Stock and Option Traders on page 21. The idea is comparing the ratio of GLD/XAU to the price of XAU. I have recreated the data and spreadsheets but can't figure out how to actually trade this info. Can anyone shed some light? For example, using the first period (5/13/05-10/7/05) that shows a strong relationship, can you point out a potential trade? Jeff's argument is that because the R Squared between the ratio and the price of XAU is high during this time, it can be used to structure trades. The spreadsheet can be downloaded here: https://docs.google.com/open?id=0B4xAKSwsHiEBQzJaWXZBR19uVEk. I tried to upload it to this post, however, the forum will not allow excel files to be uploaded directly. Thanks.
