option arbitrage....examples ?

Yes, around 2000 apparent inversions a day on average. See the attached inversion log from February 14, 2003. The lines that start with /o are the start of an inversion and the lines that start with /# are the end. Last two columns are the timestamps of the bids and offers in HHMMSSMMM format, UTC+1 I think. Columns 6 and 7 are the best bids and offers, cols 5 and 8 are the next best. Cols 9 and 10 are the bid and offer exchanges with 0 being ISE, 1 is CBOE, etc. in order of fill likelihood. Cols 11 and 12 are bid and ask sizes. This is from the SIAC multicast consolidated options feed. Colimn 4 is the last quoting exchange, which may not match up to cols 9 and 10 due to batching within UDP packets.

As you can see from the file, some of the apparent inversions persisted for quite a while, even as late as Feb 2003. I don't have any of my runs from the period (and don't have time to forge any up in photoshop! -- sorry, I know it is the ET way, but I don't have the time for it just now) and it was pure luck that I even have this log file, but we did get some fills.

We would attempt execution of what looked to be the mispriced leg first, then if filled we hit the other leg, so we can't say for 100% certain that these were pure arb fills, since the fills were not simultanious. At that time, over FIX, even the fastest exchange (ISE) still took an average of over 1 second to fill.

 

I had an arb today…maybe not by traditional definition, but it was a guaranteed profit. I knew EXACTLY how much I was about to make ( and even knew for how long I will be in the trade). The only condition was an entry ( if). Unfortunately ( for me ) only got partial fill and so unfortunately for me that this happens only few times during the qtr.
And , bth…I was the FIRST one to take this trade.
I do understand ( and agree) to ET/internet rules about everyone being a profitable trader and all , so it is what it is

 

thanks for confirming what I saw/did in the 2002/2003 time frame.

those were the days!

surf

 

Kevin is credible, but it doesn't change the fact that crossed-markets were locked-up by the OCC in 2000. You stated that you were filled "on occasion." What prevented you from achieving a higher execution rate?

 

i am so lost here....



on OT, can anyone recommend nassim taleb's book on options ? it has lot of math....hurts my brain

 

Dynamic Hedging book ? Yes, I can recommend it.

It will hurt your brain

 

well read the book.

now how do i begin making mounds of cash