Newbie Question

If I can buy a sept 33 reversal for -33.10 thats a sure thing right? What would limit the number I could buy with porfolio margin?

 

Nothing is a sure thing!

What symbol are you speaking of?

I am not sure if I get what you are asking with the diagonal spread but you only have about 10 days left. - Hope you know what your doing.

 

If you think the markets priced wrong you're probably missing something. No such thing as a free lunch

 

As I understand it theses opportunities do arise from time to time - the trade I was looking at( and ultimately made) was a sept 33 reversal on XLF - the puts were clearly mis priced( even by IB modeling software). I think the uncertainty over the Fed is causing this situation.

 

I am sorry but they're listed on 5 or 6 exchanges and I would venture to say that all the MM's who make prices in those options on all those exchanges have not all priced it incorrectly at one moment in time. The mid market prices on the 33 line are priced correctly even with the carry out to sep.

I could be wrong but I am betting there is something missing in your calculation. You dont need IB to figure out what the straight reversal market should be unless there is an adjustment of some kind

 

I am not doing any calculations - I'm looking and the bid and ask on my TWS screen . Why is it so hard to believe there is an imbalance of buyers and sellers? The part part of my question I'm really interested in an answer for is with Portfolio margin how many of these could I have bought since they are risk free?

 

XLF pays a dividend mid - Sept. It's priced into the options.

 

There is what was over looked... thanks donnap

 

The reason why I can’t believe that there is an imbalance of buyers and sellers is because of call put parity. Since calls and puts are essentially the same thing to mm’s the long call plus short stock is the same at the put and the long put plus long stock is the same as the call. If the put or the call was out of line then the market would step in and correct the side that’s out of line. That’s why I was sure you were over looking something. I don’t trade that particular EtF or any for that matter but with that one being listed in so many places its not really possible for all the mm’s on all the exchanges to miss price an option simultaneously.

 

There's no such thing as an imbalance. The put call parity is the most basic relationship and you can rest assured the market makers, who make a living with this, have priced the options correctly. These mispricing do arise, but they only exist for a second, after which time they are arbed out, so by the time the prices reach your computer the mispricing is gone.

If you see such an apparent "mispricing" then the chances are you're missing some piece of information, such as the dividends, for example.

By the way, get ready to pay the dividend!