I understand we have delta "neutral" and consequently "riskless" profit with Box strategy. Why the prevalence of this strategy with S&P 500 in the options market right now? General uncertainty about Fed's next move? Are the institutions using this strategy en masse with leverage to generate higher yield than they could get in commercial paper market right now?
Under what conditions is the box spread most appropriate and is the upside limited to the put strikes? Is there a way to tease it?
Box spreads are used to exploit inconsistancies between option prices. If the put call parity relationship does not hold you can either buy or sell the box to almost lock in a profit.
With european options it would be truely riskess. The possibility of early exercise with american options may affect your arbitrage.
Saepe amet voluptas incidunt eveniet assumenda. Corrupti et voluptate officiis maiores quidem eius minima sed. Ab soluta voluptatibus repellendus dolor inventore.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...