Options Box Arbitrage from Put-Call Parity Deviations

Summary

The article explains a box spread formed from four options at two strike prices: a lower-strike call is bought, a higher-strike call is bought, and puts at the two strikes are sold and bought in the corresponding legs. It presents the position as the combination of a bull call spread and a bear put spread, or equivalently synthetic exposure to buying and selling the underlying. The proposed opportunity arises when observed option prices depart from put-call parity.

Using a CSI 300 example, the article calculates synthetic long and short prices and estimates a positive payoff if the combined position is held to expiration. That illustration excludes transaction fees. The article cautions that parity deviations are usually small and short-lived, can be difficult to capture, and may be erased by fees; rapid execution and favorable fee terms matter. It provides no broader performance data, and the stated payoff assumes the legs can be executed and held as described.

Key ideas

• A box spread combines four options across two strike prices to create offsetting synthetic positions.
• The strategy seeks to profit when option prices violate put-call parity.
• The article illustrates calculating the implied synthetic purchase and sale prices through expiration.
• The example’s estimated profit excludes fees, which may consume the opportunity.
• Parity deviations are described as small-lived and difficult to capture without fast execution.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.