Creating Arbitrage with Stocks Options Equality | Trade Options Like a DPM Webinars #2

http://twitter.com/hamzeianalytics - The Admiral, a former CBOE Designated Primary Market Maker, does a quick example with Costco (COST) on how to create arbitrage opportunities and make instant profits through stock-option equalities. The Admiral has stressed the importance of these stock-option equalities (also called put-call parity, synthetic stock) and this is why.

This an excerpt from the "Trade Options like a DPM Webinar #2 - Verticals/Boxes" Q&A session: http://hamzeianalytics.com/pow_register.asp

ABOUT "THE ADMIRAL"

The featured speaker, whom we affectionately call "The Admiral," was a Designated Primary Market Maker (DPM) on the floor of the CBOE for five years. Although we're not using his real name (so don't ask!) suffice it to say that we consider him to be one of the most knowledgeable option traders on the planet. As a floor trader in the '80s and '90s he did the opening options rotation for 5-25 stocks the old-fashioned open outcry way—meaning he opened each option strike price for each of these stocks within the first 30 minutes of trading, both calls and puts.

That meant he had to price more than 500 option strikes, plus as a market maker he traded and kept the markets current. As a DPM, technology brought forth auto-quoting of option series, but pricing of those quotes remained his responsibility. Trading 1 million shares of stocks and 50,000 options contracts was a normal day for him. In 27 years at CBOE, he has traded through the crash of '87, the smaller crash of '90 and the tech bubble in 2000. He has traded three-digit volatility and seen every possible market environment imaginable. So, if you're going to learn options, it might as well be from the very best.

Category:

Education

Tags:

• options education
• options box spreads
• DPM
• synthetic stock
• call vertical spread
• put vertical spread
• bullish call spread
• bearish put spread
• options stock replacement
• arbitrage

[kx5001967]

Nice idea. In your example be sure to tell them that each leg is either offer side or bid side or offer out as your trigger. Waiting for a fill on the offer is at risk trade not True Arb.

In your example you "sold on the offer" ... :) it can be done but in the Arb World it won't last that long. Honest mistake.

In short: Legs are always in 1 lot increments per 100 MS thus 10 Contracts per second.

Computers each this stuff up for .02 of a penny. Humans can't win anymore... :)