BZH options:
At 11:58, Schwab is showing me:
$44.75 for BZH equity, (penny spread)
$4.60 bid for the Nov $45 call
$4.20 bid for the Nov $45 put.
So buy equity sell the call would require $44.75 less $4.60 or $40.15. This would be called selling a put synthetically.
Alternatively, selling the put directly would yield $4.20. If the option was exercised against you, you would buy the stock at $45, but have the option premium, and end up long the stock with a cost basis of $45 less $4.20 or $40.80. So correct a difference of $40.80 less $40.15 or $0.65 which is roughly 15%.
What to do?? Enter a closed/arbitrage, no risk position. Buy the put and sell the put. How do you do that???
Buy the put for $4.30 (ask), buy the stock for $44.75, and sell the call for $4.60. If the stock closes above $45, it will be called away at $45. You keep the call premium of $4.60 and a capital gain of $0.25 for $4.85 less the put premium of $4.30 for an $0.55 gain or about 1.2% (2.9% annually) in five months. If the stock closes below $45 you keep the call premium of $4.60, exercise the put at $50 for a $0.25 capital gain and lose the put premium. Same position as before.
So there it is. 1.2% sitting there RISK FREE . 1.2% is nothing to write home about, but it is risk free. If you are unsure about what to do elsewhere and have some cash to invest, then it is a great move because it is RISK FREE .
I love options. You should learn to do the same. Everyone should. Our markets would be much more liquid and stable if everyone participated. It is a patriotic thing to do. I am quite serious when I say that. Little old ladies can do better with option hedged positions in equities than money markets, and with little additional risk.
Why does this BZH arbitrage opportunity exist??? I can only guess. Stuff happens. After a while, people like you, guided by Adam Smith's wonderful invisible hand notice and take a position, making the imbalance disappear and earning (quite deservedly) a buck in the process. |
