Futures & futures options - was there an arbitrage opp?

[DisciplinedHedg]

Yesterday, with the huge ramp I saw something like this:

ES 1095

(end of month ES futures options that expire today)

1080 Puts - 2.50 x 3.75

1080 Calls - 18.75 x 20.00


Is this situation "free" arbitrage money? One could buy the ES and sell the calls, then buy the puts. Above 1080, puts would expire worthless and ES would be called away. Below 1080, puts would limit the downside on the ES. I must be missing something?

I don't usually see this. Perhaps it was because of the big up day that call options had unusually higher premiums than the calls.

Since the end of month options expire today, the setup is gone as almost all the options are par. This does use up a lot of margin just to capture only a point or two.

 

[nazzdack]

Quote from DisciplinedHedg:
----ES 1095
----1080 Puts - 2.50 x 3.75
----1080 Calls - 18.75 x 20.00
----Is this situation "free" arbitrage money? One could buy the ES and sell the calls, then buy the puts. Above 1080, puts would expire worthless and ES would be called away. Below 1080, puts would limit the downside on the ES.
----I must be missing something?

1) ?......1080 plus 18.75 minus 3.75 equals 1095. It's priced "properly". There is no "free money" there.
2) As an outside customer, you will give up "the edge", not collect it.

 

[DisciplinedHedg]

Quote from nazzdack:

1) ?......1080 plus 18.75 minus 3.75 equals 1095. It's priced "properly". There is no "free money" there.
2) As an outside customer, you will give up "the edge", not collect it.

Actually, sorry, but my example didn't illustrate it clear enough. But there was a slightly higher difference than zero if you took the straight bid and offers at the time (mine is a bad example). Around .75 to 1.00.

A better example:

1080 Puts - 2.25 x 3.50

1080 Calls - 19.50 x 21.00


And if you were able to get within the spread a little more would add to that.

All in all about 1.50 to a possible 2 point net.

Would that have been "free money"?

 

[nazzdack]

Quote from DisciplinedHedg:
----A better example....
----ES 1095
----1080 Puts - 2.25 x 3.50
----1080 Calls - 19.50 x 21.00
----Would that have been "free money"?

1) ?....1080 plus 19.50 minus 3.50 equals 1096. :eek:
2)Hypothetically, if you can pay less than 1096 for the ES, then you have "free money", ignoring fees and commissions.
3) Realistically, it will be very tough to do.