Options Arbitrage

[destriero]

It's a box, Rosy.

 

[2rosy]

It's a box, Rosy.

right, long/short 2 synthetics. i didnt see only 2 strikes in the image example

 

[destriero]

If understood him correctly, he said buying 1 delta call and -1 delta put, so they should be cancelling each other, leaving him w/ the short side.

A long box is a short outside strangle at x, y, a long inside strangle at x,y. The combo value terminates (expires) to the value of the strike differential.

lbox:

Short otm strangle at 90 and 110 strikes
Long itm strangle at 90 and 110 strikes "guts"
Shows strangle equivalence--IOW, why the guts is/are equal to otm

=

Long call & short put at 90 strike "D1 long synthetic"
Short call and long put at 110 strike "D1 short synthetic"
Shows natural to synthetic share equivalence

 

[silver182]

right, long/short 2 synthetics. i didnt see only 2 strikes in the image example

At the end of the day the only one making money is the brokerage house.

 

[destriero]

At the end of the day the only one making money is the brokerage house.

<$20K in a PM account to short 1000 of the SPY 10-wide box. 1000 is $1MM notional and returns $17K on rates (b4 comms). I'd go down and out.

Turd, it's an arbitrage.

"How can you sell the puts if you haven't bought the calls..!"

Pink Floyd