Arbitrage option trading does it really exsist?

[destriero]

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.

I trade 20K boxes a year. Even in my IRA.

 

[destriero]

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).

Dude, stop being stalky. You don't know what you're typing. Let it go.

 

[Windlesham1]

never found any arbs as a retail player - ok a few pennies here and there but trading 0nly 10-20 lots it's not worth the aggravation- certainly never found a box that could be arb'd

 

[exercisemyoption]

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.

How does this work? Buy a box and borrow from your prime broker at a cheaper rate to pay for it?

 

[Sig]

How does this work? Buy a box and borrow from your prime broker at a cheaper rate to pay for it?

If you buy the widest box possible using SPX options, for example, you get it at a discount to it's actual value. This discount is pretty much the treasury rate for that tenor, so it's effectively interest.