Put–Call–Futures Parity Arbitrage with Position Targets

Summary

The strategy compares a synthetic futures price, calculated from a call price minus a put price plus the strike, with the traded futures price. It measures the difference and opens a three-leg position when the spread crosses a configurable entry level: one direction combines a short call, long put, and long future, while the opposite direction reverses those positions. When the spread returns to zero or crosses it in the relevant direction, the targets are reset to flat. Orders are placed relative to bar close prices, with a configured price adjustment, and existing orders are canceled before each bar’s decisions.

The document provides implementation logic but no backtest, transaction-cost analysis, or performance evidence. It uses bar prices and fixed position size, and does not explain expiry matching, dividends, interest rates, margin, legging risk, or contract-specific option conventions. Those omissions matter because parity deviations may reflect carrying costs or execution constraints rather than a safely capturable arbitrage.

Key ideas

• The synthetic price is formed from call price, put price, and strike price.
• The strategy trades a three-leg option and futures position when the synthetic-futures spread exceeds an entry threshold.
• Position targets return to zero after the spread reaches the stated exit condition.
• Orders are placed using bar close prices adjusted by a fixed amount.
• The example does not assess carry, transaction costs, margin, or the risk of executing the legs at different times.

Tags

From a private course collection; the original is not published.