Or in plain English: stock + put = bond + call
Wondering if this really works in real life trading. Anyone doing it? What's the best way to implement it?
TIA.
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Put / Call parity to collect the bond
- Thread starter andrew black
- Start date
Wondering if this really works in real life trading. Anyone doing it? What's the best way to implement it?
TIA.
I have done it in the past when I had idle cash and I could get a better rate of return by selling call and buying shares and put to ensure no loss vs. what my broker would pay me for holding cash in my account. I went out about 2 months in duration. You'll want something with tight spreads like SPY.
Were you able to capture the federal funds rate? More? Less?
The reason behind your post remains unclear.
I use PUT CALL parity for index options to improve precision of IV (and subsequently greeks). The actual values for "stocks" and "bonds" in your formula do have some moving parts. If you are targeting expiration's of 6 months or less, then appropriately time adjusted Libor rates work fairly well for your rates. Longer terms are beyond my scope of interest. For the "stock" / underlying, however, deriving from the chain instead of the spot price is preferred for accounting for dividend impact.
S+P = Exp(-RT)*X+C, where S is appropriately adjusted to account for dividend impact. (I derive the S value from the chain for Index options)
I use PUT CALL parity for index options to improve precision of IV (and subsequently greeks). The actual values for "stocks" and "bonds" in your formula do have some moving parts. If you are targeting expiration's of 6 months or less, then appropriately time adjusted Libor rates work fairly well for your rates. Longer terms are beyond my scope of interest. For the "stock" / underlying, however, deriving from the chain instead of the spot price is preferred for accounting for dividend impact.
S+P = Exp(-RT)*X+C, where S is appropriately adjusted to account for dividend impact. (I derive the S value from the chain for Index options)
Were you able to capture the federal funds rate? More? Less?
I don't recall for certain, but it was definitely more than what IB pays for cash sweep because they set their cash sweep interest rate as some fixed amount less than Fed Funds. I think I got slightly better than Fed Funds because an interest rate hike was expected before expiration. The SPY dividend might have also gotten partially priced in. Best advice would be to look at the option chain during trading hours, use the ATM options and see what you can get. Actually, I have idle cash now and with vol so low, maybe I should look into doing that again.
Thanks. Please keep us updated.Actually, I have idle cash now and with vol so low, maybe I should look into doing that again.
It's actually easier to do this by buying the widest SPX box you can find. Very wide boxes are sold specifically for this purpose. You can also use this to obtain margin rates just above the wholesale rate regardless of your broker.
Keep in mind, the original post listed european options as an entering argument and the following posts listed american options. Adding the moving part of dividends makes it even more complicated, hence the ease of the SPX box (SPX is a european, cash settled option)
Keep in mind, the original post listed european options as an entering argument and the following posts listed american options. Adding the moving part of dividends makes it even more complicated, hence the ease of the SPX box (SPX is a european, cash settled option)
Thank you Sig. How wide would you go today? Like 2100 / 4100?It's actually easier to do this by buying the widest SPX box you can find. Very wide boxes are sold specifically for this purpose. You can also use this to obtain margin rates just above the wholesale rate regardless of your broker.
Keep in mind, the original post listed european options as an entering argument and the following posts listed american options. Adding the moving part of dividends makes it even more complicated, hence the ease of the SPX box (SPX is a european, cash settled option)
The wider you go the lower the commission because you don't have to buy as many, otherwise the width doesn't really matter. You can trade way deeper strikes on the COB than you would be just entering by leg because there are MMs who specifically offer this on the SPX box, so you can probably go 500/4500, you just have to experiment a bit.Thank you Sig. How wide would you go today? Like 2100 / 4100?