Arbitrage option trading does it really exsist?
- Thread starter Foxtrader
- Start date
Experienced that often. To exit my DITM options I had to accept trades under intrinsic close to exp. How can I avoid that short of exercising at expiration?
I guess that experience shows that DITM arb's are doable. I have had that happen to me several times. Before I enter into a trade I try to always have a break point where if the asset moves to far ITM then I flip from call to put or vise versa even if I have to eat some debit to make it happen.
Same here, OTM options are way more liquid and tradeable. Once you have something that's DITM you are either sitting on a pretty profit or in some crappy situation. Both of them justify a synthetically equivalent move to OTM options.
We're discussing buying say a DITM call for less than intrinsic, close to expiration, and shorting 100 shares. WTF are you talking about?
When you are on the other side of that (the one that is long a DITM call that is trading for less than intrinsic) you are in fact incurring a loss if you sell. My comment was related to how to avoid those situations by not letting those positions you are holding get too far DITM (hence being at risk of trading under intrinsic).
Most likely the seller has made enough of a profit on the options and would like to sell-to-close the position and get his money out of the trade. He doesn't care if it goes for less than intrinsic, his priority is closing the trade.
Yeah, and completely not the point. What if the trader was long from ATM and it's now deep ITM? So should he avoid covering at a $0.2 edge loss? Perhaps he's up 30 points?
Dude, less posting and more reading.
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The holder of the DITM long single may sell at a discount to avoid hedging. You're discussing how they got there... who cares? We're talking about babysitting a series with the intent of buying a call under intrinsic and shorting shares. Converting the "discount" long call to a synthetic long put at a credit.
Demystified lol.
You can get an "arb" in a wide SPX box any time, meaning you buy the box for less than it's intrinsic value. Funny thing that it always seems to be at pretty close to exactly the discount rate for that tenor though. It is an alternative to buying treasuries if you need it, or a financing mechanism if you do the opposite.