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Well, here's your answer. There is no arb or rather there is a mispricing precisely because the stock is hard to borrow.

No, not all options trade in 1 cent increments. Only the ones that are part of the penny-pilot program. So essentially these are the exceptions rather than the ones that don't trade in 1 cent increments.

The point is that there is no mispricing. Just because the market is in contango or backwardation doesn't mean the first or the second month is mispriced with respect to the spot.

If you buy an ITM Leap, say delta 0.8 or more, and get the direction right then you don't have to worry about volatility and time decay as the underlying's move will be the major factor.

The expiration week is all about which options would expire ITM and which OTM so the biggest impact has gamma and not theta. For example, if the option is ATM with 2 days to go and it moves OTM then it's not time decay that causes the drop in premium but gamma.

If they really had a track record like that they would be the richest people in the world by now and wouldn't be asking for $400. On a side note, weeklies are all about gamma not implied volatility or time decay.

The investment seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points...

VXX does NOT track VIX, but the futures on VIX, which is not the same thing. So there is NO mispricing!

Black Scholes is very easy to use. Just take the numbers and plug them in. The real problem, aka the smudge factor :), is the volatility. In other words, you can observe all the variables that go into the model except for the volatility and using "incorrect" volatility renders the output...

There is a fine line between "a nice problem to have" and "a real pain in the a$$"! :D

I trade both and sometimes it may be a bit harder to get a fill on the SPX as it has wider spreads, but overall I can't say that it's a big problem.

Open interest is only 10K so it was definitely an opening trade, however there's no way of knowing which side initiated the trade or why.

The volatility is mean reverting, but there is no time line to it, it can take a long time to revert. Volatility usually runs up prior to earnings announcements and then gets crushed after the announcement. The problem is that the announcement can be associated with a big move in price so...

I'm pretty sure there are only quarterly end of the month options. These options were specifically created to make it easier to match up your hedges to the end of the quarter, which is usually the reporting period for institutional investors. So essentially there's no need for other months.

There is no right or wrong way in trading, if it works for you (and apparently it does) then keep doing this.

You can do it with options on any underlying, not just equity options.

In a real account you have real time data.

Exactly! (Finally we are getting somewhere :) )

If you sell the option you already own then that's it, you are out and you don't owe anything to anyone anymore. The term "write" refers to when you are short an option. In this case you have the obligation to the buyer. To close out this position you would buy the same option. If you keep...

Your profit/loss would depend on the price you would sell the shares at. If the stock gaps down then you can end up with a loss.