Box Spread Arbitrage

[donnap]

Quote from kinggyppo:

was trying to keep it simple, just trying to give a practical example of synthetics, maybe you can give a better example thanks...

Ja, ich verstehe. Boxes, reversals, conversions can be valuable tools for retail. But no edge. Just a good way to close or park it in neutral. For me it's all directional.

But yeah, you gotta think trading OTM vs. ITM. OTM is great. ITM often doesn't exist.

For example, on a long trade, selling the otm C on long trade. It's a great way to minimize risk, but you have to buy OTM/ITM put to eliminate risk. I wanna make money.

 

[newwurldmn]

Quote from drownpruf:

Yeah, I think you've located a massive arb. I'm pretty certain nobody has done the math on that. You honestly believe that anyone is going to hand you a synthetic under long shares?

Sure it happens. I once bought am ITM call vertical for a credit, so what?

Why is it that anyone new to options assumes that we all started trading them yesterday?

When did you trade that call spread? Was it through a convert and a listed market?

I remember when boxes were the rage on 07. Traders at Large banks that funded below libor padding their pnl by lending out fortress balance sheets for 20 bps.

 

[drownpruf]

Quote from newwurldmn:

When did you trade that call spread? Was it through a convert and a listed market?

I remember when boxes were the rage on 07. Traders at Large banks that funded below libor padding their pnl by lending out fortress balance sheets for 20 bps.

It was 2008 iirc. I don't recall the underlying, but it was listed. Nickel credit as a result of the broken upside call.

 

[drownpruf]

Quote from donnap:

Ja, ich verstehe. Boxes, reversals, conversions can be valuable tools for retail. But no edge. Just a good way to close or park it in neutral. For me it's all directional.

But yeah, you gotta think trading OTM vs. ITM. OTM is great. ITM often doesn't exist.

For example, on a long trade, selling the otm C on long trade. It's a great way to minimize risk, but you have to buy OTM/ITM put to eliminate risk. I wanna make money.

Rolls are very common for tax deferral.

 

[chicagodon]

downsyd you're right once I get done with nursery school and grow up I want to be just like you. You are probably so rich, have a nice house and tons of cars! You probably trade at the best trading firm in the world and you have the biggest book. I imagine you stand in the middle of the floor shouting out orders to over newb traders while they are scared to even look at you. You probably went to an Ivy League school and played Lacrosse, and there are still stories about how you used to dominate people. The fact that you can take time out of your busy schedule of trading, spending money on Hermes ties, getting taken out to dinner from brokers, all the charity events you are invited too, not to mention the big pile of blow on your table, that you would help out on ET is something I really admire, I hope we can stay in contact for when I grow up.

Quote from drownpruf:

How ironic. That's exactly what you implied.

each time I read about these synthetics they always make a point that sometimes you can capture a little bit more if the options are miss priced compared to the underlying

It's pretty rare to come across free-money, and for you? Impossible. When does Nursery School end? Who is Miss Price? You have a conversion when the call vol trades over the same-strike put. So yeah, put on a bunch of these free money conversions. Or boxes! Maybe someone should outline every arb for you and you can ask if it's still routinely exploited.

Ergo, put on any marketable conversion and you're locking in a loss. I am sure someone, maybe I, will post some examples if they want to state the blatantly obvious with empiricism.

 

[chicagodon]

Quote from donnap:

Ja, ich verstehe. Boxes, reversals, conversions can be valuable tools for retail. But no edge. Just a good way to close or park it in neutral. For me it's all directional.

But yeah, you gotta think trading OTM vs. ITM. OTM is great. ITM often doesn't exist.

For example, on a long trade, selling the otm C on long trade. It's a great way to minimize risk, but you have to buy OTM/ITM put to eliminate risk. I wanna make money.

Cool thanks appreciate it.

 

[drownpruf]

Quote from chicagodon:

downsyd you're right once I get done with nursery school and grow up I want to be just like you. You are probably so rich, have a nice house and tons of cars! You probably trade at the best trading firm in the world and you have the biggest book. I imagine you stand in the middle of the floor shouting out orders to over newb traders while they are scared to even look at you. You probably went to an Ivy League school and played Lacrosse, and there are still stories about how you used to dominate people. The fact that you can take time out of your busy schedule of trading, spending money on Hermes ties, getting taken out to dinner from brokers, all the charity events you are invited too, not to mention the big pile of blow on your table, that you would help out on ET is something I really admire, I hope we can stay in contact for when I grow up.

Wow, are you watching me right now? It's uncanny. No worries as I can always be reached by PM. Don't be a nuisance, though.

 

[newwurldmn]

Quote from drownpruf:

Rolls are very common for tax deferral.

Aren't most of these considered contructive sale and so you can't defer the tax gains.

 

[drownpruf]

Quote from newwurldmn:

Aren't most of these considered contructive sale and so you can't defer the tax gains.

Right, but ignore legality.

 

[chicagodon]

Quote from drownpruf:

Wow, are you watching me right now? It's uncanny. No worries as I can always be reached by PM. Don't be a nuisance, though.

What would even be better then PM would be to have your company email address or your Bloomberg email whichever would be easiest to send you my résumé for a janitorial job at your firm?