I'm not an options trader but every now and then, I like to look at the market and see if I see anything.
Did anybody notice that well in-the-money S&P leaps are selling for less than the underlying price - strike?
Does this make any sense?
For example the JUN 2011 500 has an ask at $511.8 despite the fact that the S&P is at 1022. That seems to appear that somebody could replicate and outperform the S&P by simply buying a Jun option for $511 and putting another $511 in a one year CD at 2%. No matter what happened to the S&P, that person would have $20 more than what they'd have if they just invested the full amount directly in the S&P.
Is there a significant counterparty risk to S&P options that isn't there for direct investments? What is the catch? This seems like a little bit too easy of an arbitrage opportunity. I know I'm missing something.
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To remove first post, remove entire topic.
I'm not an options trader but every now and then, I like to look at the market and see if I see anything.
Did anybody notice that well in-the-money S&P leaps are selling for less than the underlying price - strike?
Does this make any sense?
For example the JUN 2011 500 has an ask at $511.8 despite the fact that the S&P is at 1022. That seems to appear that somebody could replicate and outperform the S&P by simply buying a Jun option for $511 and putting another $511 in a one year CD at 2%. No matter what happened to the S&P, that person would have $20 more than what they'd have if they just invested the full amount directly in the S&P.
Is there a significant counterparty risk to S&P options that isn't there for direct investments? What is the catch? This seems like a little bit too easy of an arbitrage opportunity. I know I'm missing something.
As the S&P falls those calls will become a lot cheaper. Essentially you could lose your total $511 even though it is very unlikey the S&P falls below 500.
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As the S&P falls those calls will become a lot cheaper. Essentially you could lose your total $511 even though it is very unlikey the S&P falls below 500.
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