Box Spread Arbitrage

[chicagodon]

Thanks for all the responses and the links. I took some time this weekend to study more about synthetic positions and I think I will start to trade those more versus what I have been doing. Also when you are talking DTIM options, I used TOS thinkback to see what the GMCR calls were selling for the day I put on the trade, and I noticed that the Oct 70 calls had about 400 OI but the Nov 70 calls had 2. If I decide that I want to buy a DITM call what is a decent number of OI I should be looking for so I know they at least trade even if that means I'm hitting the bid to get out?

Just curious, 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, how often is this true? I assume computers have taken over that aspect and arbitrage of that nature is done for the average retail trader?

 

[drownpruf]

Quote from chicagodon:

Just curious, 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, how often is this true? I assume computers have taken over that aspect and arbitrage of that nature is done for the average retail trader?

Who's telling you that the synthetics offer an edge? You will lose more or make less if buying the 70 synthetic over the shares, no doubt. The logic behind familiarizing yourself with the synthetic has really nothing to do with edge over the natural.

 

[chicagodon]

Quote from drownpruf:

Who's telling you that the synthetics offer an edge? You will lose more or make less if buying the 70 synthetic over the shares, no doubt. The logic behind familiarizing yourself with the synthetic has really nothing to do with edge over the natural.

What I meant was how often is the c-p < u - x for example

 

[drownpruf]

Quote from chicagodon:

What I meant was how often is the c-p < u - x for example

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?

 

[chicagodon]

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?

It was a simple question dickbag.

 

[drownpruf]

Quote from chicagodon:

It was a simple question dickbag.

lol who told you.that synthetics are cheaper? Because you need to stop listening to them.

 

[chicagodon]

Quote from drownpruf:

lol who told you.that synthetics are cheaper? Because you need to stop listening to them.

Are you dense? I never said they were cheaper, all I said was in Nattenburg & McMillian he states that sometimes the c-p < u-x or vice versa, all I was asking is for people who have traded options a lot more if they ever come across this anymore.

 

[kinggyppo]

Don if you are doing simple directional trades you should understand what your delta is and how it effects your profit/loss, that was my whole point. There are no arbs for retail traders, markets are very fair so you have to take a view on vol or direction. No retail guys are doing conversions/reversals that I know of. This was a strategy from way back when there was some edge being on the floor. Also, you can't say anything on this board without someone jumping down your throat, why is everybody so fuckin testy?

 

[chicagodon]

Quote from kinggyppo:

Don if you are doing simple directional trades you should understand what your delta is and how it effects your profit/loss, that was my whole point. There are no arbs for retail traders, markets are very fair so you have to take a view on vol or direction. No retail guys are doing conversions/reversals that I know of. This was a strategy from way back when there was some edge being on the floor. Also, you can't say anything on this board without someone jumping down your throat, why is everybody so fuckin testy?

Thank you that was the answer to my question!

 

[drownpruf]

Quote from chicagodon:

Are you dense? I never said they were cheaper, all I said was in Nattenburg & McMillian he states that sometimes the c-p < u-x or vice versa, all I was asking is for people who have traded options a lot more if they ever come across this anymore.

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.