Box Spread arbitrage option

#1
Hello evrybody,

I Sold the box spread of Unitech today with the stike price of 80 and 85. and received the net premium of 5.60 and underlying value is 75.
My trade:

Sell 80 Call @ 5.35
Buy 80 Put @ 8.05
Buy 85 Call @ 3.15
Sell 85 Put @ 11.45

So net credit is 5.60 and strike difference 5 so net income is 0.60.

I have a query here, I have sold the out of the money call at a strike price of 80 and also sold the deep into the money put with the strike price of 85. It is a european option so if any one exeresice the put then how can I earn money and in this situation, what should I do? Is there any risk involve? or should I wait till expiry.


How any one can exersice the option? please explain.

I request the expert to throw some light on this.

Thanks
 

rajeshn2007

Well-Known Member
#2
Hello evrybody,

I Sold the box spread of Unitech today with the stike price of 80 and 85. and received the net premium of 5.60 and underlying value is 75.
My trade:

Sell 80 Call @ 5.35
Buy 80 Put @ 8.05
Buy 85 Call @ 3.15
Sell 85 Put @ 11.45

So net credit is 5.60 and strike difference 5 so net income is 0.60.

I have a query here, I have sold the out of the money call at a strike price of 80 and also sold the deep into the money put with the strike price of 85. It is a european option so if any one exeresice the put then how can I earn money and in this situation, what should I do? Is there any risk involve? or should I wait till expiry.


How any one can exersice the option? please explain.

I request the expert to throw some light on this.

Thanks
you have not sold "out of money put" as you have said. also stock options are not "european'. they can be exercised any time.

if someone exercises the put, you have sold , then immediately you exercise your put you have bought.

there is always risk is writing puts. (though you have bought 80 put).
don't venture into acts you are not sure of :)
 

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