Options Arbitrage !!!

R

rahulmohata31

New Member
#1
#1
Kindly let me know the implicaion of te following transaction :

RPL Dec FO - 70.00
RPL Call 70 Strike - Premium - 5.00
RPL Put 70 Strike - Premium - 4.00

If I sell (short) both the options ie CA and PA, I tend to earn the Premium amount of 9 rupee and I do not loose till RPL Spot is Less than 61 or 79.... and at the same time I earn the Theta Interest income of around 400/- per day..

Does it form an ideal Arbitrage transaction or there is some Loop which I am unable to understand...

Expect your inputs .
 
bandlab2

bandlab2

Well-Known Member
#2
#2
the word arbitrage does NOT apply here. arbitrage is when no matter what you make profit due to imbalance in prices.

here risk is below 61 and above 79. selling options is risky with unlimited potential of loss. if you expect the market to be range bound for some time then you can trade this

market can go to nifty 2200 in this series which means RPL can go down to 55
 
A

AW10

Well-Known Member
#3
#3
rahulmohata31 said:
Kindly let me know the implicaion of te following transaction :

RPL Dec FO - 70.00
RPL Call 70 Strike - Premium - 5.00
RPL Put 70 Strike - Premium - 4.00

If I sell (short) both the options ie CA and PA, I tend to earn the Premium amount of 9 rupee and I do not loose till RPL Spot is Less than 61 or 79.... and at the same time I earn the Theta Interest income of around 400/- per day..

Does it form an ideal Arbitrage transaction or there is some Loop which I am unable to understand...

Expect your inputs .
Click to expand...
This is a 3-leg bullish position. If price go above 70 then Future and Short Put will go in your favour.. but Call will be going aginst you.
It will hurt you badly if price go below 70. you Put and Future start going against you whereas Call will be in your favour.

This position will earn due to time decay (Theta).. but 1 Rs. adverse move in future price will take away the time gain of 4 days (1675 lot size) for you.

Due to poor liquidity, you will not be able to sqaure off the options leg at right price. There will be slippage (bid/ask spread).

Happy Trading
 
A

assaraf_pm

New Member
#4
#4
AW10 said:
This is a 3-leg bullish position. If price go above 70 then Future and Short Put will go in your favour.. but Call will be going aginst you.
It will hurt you badly if price go below 70. you Put and Future start going against you whereas Call will be in your favour.

This position will earn due to time decay (Theta).. but 1 Rs. adverse move in future price will take away the time gain of 4 days (1675 lot size) for you.

Due to poor liquidity, you will not be able to sqaure off the options leg at right price. There will be slippage (bid/ask spread).

Happy Trading
Click to expand...
. is any useful website or books helping to understand d idea of arbitrage......????

assaraf
 
N

NOMINDTR

Well-Known Member
#5
#5
Asraf,

I have attempted your question on arbitrage on the other thread you had initiated. What you discuss here is not Arbitrage.

Cheers
 
A

addycool

New Member
#9
#9
Arbitrage opportunities are always present in markets, however due to transaction and other costs it is hard for a retail investor to capture them. For example a small variation in prices conisdering the futures price stock price and funding costs. say the variation 5 paise for a 100 rs stock, u can create an arbitrage if you can trade at the price you calculated and dont have transation costs, however in real world - you will have much higher transaction costs(bid ask spread,brokerage etc) than this opportunity.
 
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