Powerful SPX options arb with $9K instant profit and a free hedge
- Thread starter guru
- Start date
You will not get the midprice for these DITM options.
On expiredate you will get 1700 but lose 3*530. So you will get 1100 and you pay 1810.
You will get pretty close. And I just re-tested this trade with the worst possible prices where you pay the full asking price, and there is still $6500 guaranteed profit shown.
Not really, you can't lose much money by the expiration (September 17) because this trade is perfectly balanced, meaning you have 4 DITM calls and you sell 4 DITM calls, so nothing can happen unless the stock market crashes below the 2830 call strike in the next 42 days, in which case you'd make even more money.
So by September 17 you should be able to get the exact same price you just paid, and there is no reason to lose money unless the prices of various options would change for some reason.
There is also a way to prove it, as the option P&L/risk graph shows that the 600C/2300C diagonal spread is mispriced by $10K, because it should be worth at least 2300-600 = 1700, but in reality is priced at ~1600, so $10K profit comes just from here:
I added other options in my previous/initial graph to protect the downside, thus being able to collect this $10K in mispricing without risk.
But that ~$10K profit is false, so the question still remains: where does it come from, and why the ToS shows bogus profit.
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I looked at some like that a couple years ago. Diags and calendars aren't always modeled correctly. Especially the weeklies. Here is a sure fire winner...not. The IVs will change at different rates, so at the near expiry, profits are gone. At least, that's what seemed to be happening. But I'm just a little retail hack. I'll let you experts figure stuff out. 
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I looked at some like that a couple years ago. Diags and calendars aren't always modeled correctly. Especially the weeklies. Here is a sure fire winner...not.
The image seems missing, if you could repost it again?
Dang...shows up on mine. Trying again
Nope. Maybe you posted a link to an image on your local computer?
Maybe try copying and pasting the image itself.
Uploaded as a file. Hope this shows up.
Lol, you just discovered that SPX forwards correctly price for anticipated dividends. How exactly do you expect the June 2023 $600 call to be priced on the Sept 2021 expiration date?