Rare arbitrage profit from call vs put prices: explain why not being taken?

Discussion in 'Options' started by Option Trader, Feb 8, 2010.

  1. heech

    heech

    No idea; I've never seen it or come across it before this conversation.

    I can imagine it plays a role for institutional investors (and maybe larger retail) who're putting on a short position and need certainty about borrowing rates + availability. (IB's "daily" indicative rates + hourly availability makes it pretty hard to use, doesn't it? My rule of thumb is to stay away from anything where I even have to worry about it.)

    I wish OneChicago was more relevant.
     
    #51     Feb 8, 2010
  2. Ummmm, that's the definition of "ask" - the price at which you can easily buy (at least some) contracts. If it were easy to buy at the "median" (?) then that would be the "ask".
     
    #52     Feb 9, 2010
  3. cvds16

    cvds16

    with options of such a low price, you will always have to go across the spread to get anything like the previous poster pointed out.
     
    #53     Feb 9, 2010
  4. cvds16

    cvds16

    how is your arb going in practice ? Cause that was after all the point of this whole thread imo ...
     
    #54     Feb 9, 2010
  5. Did we really just have a 9 page thread only to find out that Option Trader doesn't get the concept of a bid/ask gap? Seriously?
     
    #55     Feb 9, 2010
  6. spindr0

    spindr0

    He's now confident and ready to trade on a simulator :)
     
    #56     Feb 9, 2010
  7. Apparently so. He seems to believe he can trade illiquid options at the bid/ask midpoint (or "median" as he miscalls it).
     
    #57     Feb 9, 2010
  8. This might be more interesting if the options sold in penny increments and had a narrow spread, but as it stands now you could get killed by the spread.

    If you bought the option combo when CTIC was .60 and sold it when CTIC was .80, how much could you have made?
     
    #58     Feb 9, 2010
  9. I could live with it if I didn't manage to convince you of the reality of the situation; that wasn't my agenda, and a pity to waste the time.
     
    #59     Feb 10, 2010
  10. I think I now have the answer to my question:

    In as much as there are bears who would pay huge carry costs to short the stock, some would rather buy the puts; however, that is VERY expensive, hence they sell the calls as well of the same strike price, (and even offer a synthetic long stock position to others at a reduced cost). The net result is they benefit from the downside for a cheaper price than shorting the stock. Hence, they are currently offering e.g. to buy the June 1 calls at $.20 (or $.25), and bidding to buy them at $.60 (or $.55), meaning they are offering their counterparty to get the upside for $.60 to $.70 instead of the current market price of $.737.
     
    #60     Feb 10, 2010