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I have been looking into pairs trading strategies (stationary linear combination of multiple securities) for options. Multiple related options or option and underlying over small periods of time such that change in delta and time decay don't become a significant factor.

I can not find any literature around this for options. It seems like everyone doing stat arb in options is basically selling/buying volatility. Is there any particular reason for not pair trading options? Could someone please point me to relevant literature? Thanks.

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    $\begingroup$ For one, I think for identifying stat-arb opportunities, securities are usually selected from a basket of thousands if not millions of equities to find truly meaningful cointegration relationships. I doubt that equity options markets (in particular options on single stocks) are deep enough to support this sort of trading. $\endgroup$
    – rubikscube09
    Oct 15, 2020 at 22:26

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I can not find any literature around this for options...Is there any particular reason for not pair trading options?

There is pair trading in options but from what I've seen for equities (and rates and FX) it's discretionary rather than systematic. Examples: VIX vs. VSTOXX was a popular trade for a long time; SPX vs. NDX has recently got attention.

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