SPY Options Arb

G

guru

Or is it?
Have fun figuring this out.
I'm not using calls in this trade to eliminate dividend risk, but maybe it's still affecting this play?

upload_2021-8-3_8-55-37.png
 
Here it is with IV flattened, to show there is no risk.

upload_2021-8-3_8-58-19.png


Though ToS graphs suck and I'm not sure whether this is shown properly at all.
I've ran into many situations where those graphs are so wrong that you can lose money just by using them.
(though my own system also shows this is an arb, which I'm trying to confirm)
 
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Do you mean you cannot lose money? I mean, just from looking at the graph you can see that the curve is lower on 8/29 than on 8/1...which means you prolly donate
 
MrMuppet said:
Do you mean you cannot lose money? I mean, just from looking at the graph you can see that the curve is lower on 8/29 than on 8/1...which means you prolly donate
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Unless this setup is currently mispriced, which would give you instant profit, which later may come down to ~$0. Basically you’re paying less than it’s worth, while later can lose that profit, but not lose more than you put in.
At least that’s how it looks.
 
guru said:
Unless this setup is currently mispriced, which would give you instant profit, which later may come down to ~$0. Basically you’re paying less than it’s worth, while later can lose that profit, but not lose more than you put in.
At least that’s how it looks.
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I see. Can you transact on these prices?
I don't have the time to have a closer look right now, but every time I see stuff like this, I do two things:

1. determine which leg is mispriced
2. slap on a feeler for min size to see if I get an execution.
 
I just bought this setup for fun:

upload_2021-8-3_11-31-26.png


Also, my own Risk Graph shows positive Theta and value increasing over time, so quite different from ToS, so I'm not sure which one is right:

upload_2021-8-3_11-32-23.png


At least my Risk Graph shows the current profit at $0, therefore utilizing current pricing, even if mispriced.
While ToS seems to show immediate profit and later the value still holding above $0 profit.
The end result may be similar, while the only question is whether this setup is indeed mispriced/arb.
 
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traider said:
Use put call parity to break down the position then you can see it
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The risk graph eliminates the need to do so, but there are caveats, and put/call parity isn't always straightforward on dividend-paying stocks.
Calls don't include dividends and would require exercising a call to collect dividends, but the "exercisability" and profitability may depend on where the stock price and dividend amount will be on ex-dividend date.
That's why I'm using only puts, as they already include implied dividends and there is no need to exercise them. There are also 100 shares as part of this trade to collect dividends, if any.

Anyway, consider this a freebie for anyone seeking edges. Asking someone else to use put call parity ain't going to give you an edge.
I track hundreds of setups at any one time, but usually trying to stay away from dividend-paying stocks, for reasons like above. May start looking closer into these as well.
 
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