Are you absolutely sure there is no cost of carry in synthetics!? Cost of carry is composed of interest less dividends. However, let's assume this is an arb. To capture it you would buy the put calendar and sell the call calendar. For argument's sake, let's say that GOOG expires right at 300 in Dec09 and that neither Dec09 option is assigned/exercised (i.e. both expire worthless). This assumption is just to illustrate a point, the principle is the same for any expiration price. Your resulting position is long Jan11 300 put and short Jan11 300 call. In order to realize the arb you must hold the two options to expiration. So to hedge yourself you would buy the stock, since you are short synthetic. In order to buy the stock you would either use margin and pay interest on it or forgo the interest you could have earned on the cash had you not purchased the stock. So here's your cost of carry. Still think there is an arb? EDIT: I forgot to add that the interest on the long stock would cover the difference between the two calendars.
I'm not too sure that you have a lot of friends here but I sure do think that's a counterclockwise answer. There is a cost of carry in options. That's what makes calls more expensive than puts. If there wasn't, the respective calendars would cost the same since they're equivalent. While the changes in the individual components is different , the change in the spreads is not. What the put calendar drops, the call calendar gains (ya know, the equivalence thing??). That's what makes the call calendar cost more. There's no arb there. As for the your full service red herring, margin requirements aren't overwritten by convincing brokers otherwise.
i dont say,there's a possible arbitrage-your theory says they are the same syntetic and they MUST move equally,so if they are prized differently-you make money out of nothing.in that case the "misprising" sould be only occuring for a short momentum timeframe,because some MM fell asleep,or is too high(coke or other syntetic substitutes) what you are talking is cost of trade,not cost of carry.and why make your life complicated by hedging,exercising and ect.? you just get rid of at as soon as it "balances".......sometime from now up to the exr. of the shorts. about the cost of carry,i can asure you,that in this case you have a positive one,NOT A NEGATIVE.....why? because you do an arbitrage for credit-you get money upfront-you dont put your own money,so "concerned" about losing money from IR.....you get money,so you have a positive IR for the time you hold the position. there's no "hidden cost of carry" inside of it.......shorting one neutralizes the long one-it so simple...... is there cost of carry difference between short put and covered call?
You ask why make your life complicated by hedging, exercising? Without it you will never book the difference between the two as a profit, because the two calendars will never balance out. You obviously do NOT understand option pricing so this whole thread is a waste of time and effort in trying to explain you the basic relationships. At the end of the day it's you who is worse off by not understanding this, not me. Better yet, if you are so sure this is free money, why don't you trade it and reap the rewards!?
i am sayng there's no free lunch-and i am trying to show it in "reverse"...... if guys like sprint were right-they could make money out of fin air everytime they find ....... check the beggining of this forum-everybody was saying to the "founder" of the forum,that THERE IS NO DIFERENCE between OTM put calendar and ITM call calendar........ now everybory is saynig there IS A DIFFERENCE-one is sayng that is the dividend,another that is IR,you ,that there is cost of trade...... and ofcourse nobody would agree with me,that is the IV prising in the vega of the spreads......that thay are semisintetics,not a pure ones...... i get the picure ,that i am the "bad" and the "stupid" one,because i argue with all of you......but still nobody had explained why something ,which is one and the same ,is prized differently? isnt that what at first all of you were trying to "educate" the founder of this "paradox"?
First of all, is English your first language? If it is then, mate, you gotta learn to spell. I never said that the two calendars are not the same. They are the same and they are priced the same, but in order to see this you need to account for all the variables that affect the pricing. If you don't do this the two seem to be priced differently. Don't twist our words!
I'd say it's been pretty obvious from the beginning of this thread, but there seems to be some mystical power that prevents us from leaving it alone and not posting. I actually did pretty well from page 7 to 13 by staying away, but then got drawn back in.