A noob with some questions (already googled)

S

shudb

Hi there!

I'm starting to look at options and I've found some short box spreads oportunities...

after reading many post on this forum, I've found that main risk on box spreads are early excercises due to dividends... but what about index options (european style) like djx or spx... if there is an arb. oportunity on these options, what are the potential risks if they are european style options?

im looking at those and not on collars+stock.. due to margin requirements

on the other hand... what happens when you have an american style call option which is relatively ditm and at the same time on same expiration date you also have a put itm option?

for example

celgene

sep15 +1 call 110
sep15 -1 call 125
sep15 +1 put 125
sep15 -1 put 110

total cost: 14.88 debit spread wide 15

what if at the expiration date underlying is trading in the middle of the spread lets say at 118 how is the settlement process on these?

and how it would be settled if i short it... for example..

sep15 -1 call 110
sep15 +1 call 125
sep15 -1 put 125
sep15 +1 put 110

total cost: 15.20 credit spread wide 15

sorry if questions are too dumb... but i only found answers explaining what would happen if underlying moves away of the short positions... nobody explains what would happen if underlying expires in the middle of the spread considering that celgene is american style option

many thanks in advance!
 
debitspread said:
These 'opportunities' are sufficient to cover transaction costs and cost of capital?
More...

hi! yes, I'm using ib brokers and I've a mrgin account, I'm trying to not use anything of that margin, i mean, only use the cash to open the position....

I mean if i enter for example the debit box

total cost: 14.88 debit spread wide 15 the comissions are something like 6 usd

and supposedly there is no aditional costs at expiration....
 
newwurldmn said:
He can arb the box. Buy the box for 14.85 and sell it for 15.2. It's a free 45 cents.
More...

It is a "free" 35 cents but since this is an imaginary example it does not really matter. We do not know if he is quoting the actual bid/ask values or last trades or mid values to get his box price and I doubt a market maker is pricing a fee box trade for a retail trader to pick off....
 
Hi,

the prices for the celgene box were 100% real, and for the djx i found a debit box, and I've got a fill on some box, but as you can imagine on paper trading there will not be early exercise risk or dividends... and I don't know if on paper trading they'll replicate exactly what happen with my examples on expiration...

in the same way as you i was the first reluctant with this, and before entering a trade and doing something fool I've decided to ask some live traders...
 
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