I just found a trade that seems too good to be true. So i might have missed something. Please check this out. SHLD Sept 18. options with a strike price 35 are trading as follows: Calls 6.35 Puts 11. Stock price is 35. If I short stock, sell the put and buy the call I would make 465 till Sept. Risk free? Please comment...
I have not checked this - but you know it cannot be possible. Are you certain the deliverable for this option is 100 shares of SHLD? Mark
Strange. At first glance, those options appear to be standard, then I notice the June options are basically priced at parity - they are around $600 each and then all of the sudden, the Sept puts are around $1000, with the calls being $750 range. I do remember there being some stocks similar where the issue was either they were impossible/difficult to short, or you were charged a large rate for shorting those stocks. I'm not sure if SHLD was one of those stocks. I think there is somewhere a person can look to see if a contract is an adjusted contract, but I am not sure of the quickest way to lookup an individual contract right now. Also, would it be possible that a large dividend is expected between June and Sept expiration? JJacksET4
The contracts are not adjusted. Well at least not according to TOS, which usually marks the non-standard ones.
A while ago someone else posted a very similar "free lunch" trade. I think the stock was also SHLD, but I am not certain. Anyway, it turned out that the stock was very hard to borrow and if you could there was an extremely high cost. As I recall around 30% annually. Don
heh you may want to check this thread: http://elitetrader.com/vb/showthread.php?s=&threadid=134814&highlight=shld as bush would say..fool me once shame on you..fool me twice shame on..err wtfowned!