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This is normally done with a conversion. theoretically a no risk transaction. then it
can run to expiration or do the reversal for a profit to get out of the position. Very
few floor traders will do it andy other way. Unless things have changed since I left
the floor. Ira
THE DOCTOR wrote:
> Dividend arb is still a very common practice on the option floors. Essentially
> the arb arises from the difference between the X amount which is still a discrete
> amount i.e.. 1/8 3/16 1/4, etc. versus the dividend which is actually in
> decimals. So you buy the deep option, exercise and sell it out. You need very
> low transaction costs to make it work since trading in 1/16 became common.
>
> JAC115@xxxxxxx wrote:
>
> > Re your dividend strategy observation....if my memory serves me correctly, the
> > formerly huge Japanese banks executed this strategy like clock-work in the mid
> > to late 80's. You may want to look back at these cases.
> >
> > By the way, at that time, some of us perceived that this type of trading and
> > corresponding positioning caused 'market volatility'....once again, everything
> > is relative.
> >
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