Option Arb

momoneythansens · Oct 4, 2006

Quote from cvds16:

I used to do this and made a nice living at it untill they introduced cancellation costs at IB, so yes it is being used.

Agree, it is possible for the advanced (technologically) retail trader.

I believe Metooxx who used to post regularly on this forum did/does some form of automated options arbitrage.

stevegee58 · Oct 4, 2006

Quote from cvds16:

well i had an option model real time linke to quotes. I sat on the bid and ask of about 25-30 options in the first two months, sometimes third month. and i had prices lighting up on my spreadsheet if things got out of line. I tried to hit everything I could if my position didn't get too much out of hand. I hedged through dia and ym, most of the time I didnt have much delta (often less then 100). When I got gamma-short too much I tried to be a big bidder in comparison to my asks, sometimes about 10 times as much. I sent about 1000 quotes each day to the exchange so it was quite intense for 6.5 hours.

Jesus. And how have your ulcers recovered since you stopped doing this?

cvds16 · Oct 4, 2006

it was quite fun actually, I had my pc configered as a kind of video-game with hot-keys to adapt prices and, if needed, cancel them as fast as possible. The fact that I made money practically every day helped too. The small gains added nicely at the end of the day, only if vol started to move fast in one direction was it hard for me to hedge at decent prices or to keep things under control.

Don87109 · Oct 4, 2006

Quote from cvds16:

it was quite fun actually, I had my pc configered as a kind of video-game with hot-keys to adapt prices and, if needed, cancel them as fast as possible. The fact that I made money practically every day helped too. The small gains added nicely at the end of the day, only if vol started to move fast in one direction was it hard for me to hedge at decent prices or to keep things under control.

I would say you were dynamically hedging not arbitraging.

I probably don't know the exact definition of each term, but I think of arbitraging as simultaneous setup of offsetting transactions resulting in zero risk with a locked profit. Your positions sounds like they had risk and needed constant attention. So I would say they were hedging transactions.

Don

MTE · Oct 4, 2006

Yeah, that doesn't sound like arbing, more like scalping.

cvds16 · Oct 4, 2006

arbing in options is not an absolute thing, it's more statistical, and it's dynamic hedging. It's not like you will ever get the chance to sell the call buy the put and do the future at same time all out of line. Forget that, it will never happen. And it doesn't happen for market makers either.

Don87109 · Oct 4, 2006

Quote from cvds16:

arbing in options is not an absolute thing, it's more statistical, and it's dynamic hedging. It's not like you will ever get the chance to sell the call buy the put and do the future at same time all out of line. Forget that, it will never happen. And it doesn't happen for market makers either.

Is arbing without options an absolute thing?

Don

cvds16 · Oct 4, 2006

it can be if you buy and sell stock simultanously on two different exchanges in different countries and hedge your forex-exposure if necessary. That's pretty close to it.

riskarb · Oct 4, 2006

Option arbs are rate swap bets with a + expectancy. The thread title is a misnomer in relation to the OP's trading activities.

Don87109 · Oct 5, 2006

Quote from riskarb:

Option arbs are rate swap bets with a + expectancy. The thread title is a misnomer in relation to the OP's trading activities.

CVDS,

There ya'go, there is such a thing as option arbs.

Let this be a lesson to you.

Don

P.S. Just kidding