Hello,
I have a few years of experience successfully trading options.
Today, I came across what looked like an arbitrage opportunity and took it.
I only did the trade 1 time because I'd rather miss an opportunity and find other ones later than to fail to understand something and risk my account.
Now I'm going to break it down and see if it actually worked. (spoiler: I forgot something and will have a guaranteed loss. I'm happy I didn't make more than 1 trade). I hope to achieve 2 things:
1) Cross-check my logic and calculations to see if I understood everything correctly.
2) Maybe provide some insights to someone else reading this post.
There are 100x multipliers applied to all numbers. Everything is in USD.
Here are the trades I made.
Trade 1 : BABA reversal for -126.10 (see details below).
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|\-|16:48:15|BABA Jan'26 130 Reversal|BOT|1|\-126.10|CBOE||3.02||
||16:48:15|BABA Jan16'26 130 PUT|SLD|1|19.15|CBOE||1.11||
||16:48:15|BABA Jan16'26 130 CALL|BOT|1|23.34|CBOE||1.06||
||16:48:15|BABA|SSH|100|130.29|CBOE||0.85||
I paid $0.0302 in commission (with multiplier taken into account).
There is a 0.25% cost to borrow, so $0.3783 in borrow cost (multiplier taken into account).
I must admit at this stage that I forgot to take into account the stock borrow costs when I placed the orders.
At expiry, this position should be worth $130 (or very close to that if I am between $130 and $130.29 at expiry? I wanted the stock at $130, but it is $130.29).
So, I got $126.0615 today (removing commission) and will need to pay $130.3783 at expiry (including borrow costs). The difference is $4.317.
As long as I can make more than $4.317 using the $126.0615, then I make a profit, right?
Trade 2 : SPX 5900-6025 Box
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|\-|16:50:06|SPX Jan15 '26 5900 - 6025 Box|BOT|1|120.40|CBOE||6.87||
||16:50:06|SPX Jan15'26 6025 PUT|BOT|1|285.56|CBOE||1.72||
||16:50:06|SPX Jan15'26 5900 PUT|SLD|1|250.96|CBOE||1.72||
||16:50:06|SPX Jan15'26 6025 CALL|SLD|1|449.67|CBOE||1.72||
||16:50:06|SPX Jan15'26 5900 CALL|BOT|1|535.47|CBOE||1.72||
I paid $0.0687 in commission (with multiplier taken into account).
At expiry, this position should be worth $125.
So, I paid $120.4687 (including commission) and will get $125 at expiry, which is a difference of $4.5313
I also still have $5.59 (multiplier included) ($126.0615-$120.4687) cash that I did not deploy and that will get me some interest.
Am I correct that, as long as borrow costs don't change, I:
1) Made a guaranteed profit of $453.13-$431.7=$21.45
2) Get an additional profit on the interest of $559. Let's say about an extra $20.
In case annualized borrow costs double to 0.5%, I would make a profit of basically $0.
In case annualized borrow costs go about 0.5%, I start making a loss.
Of course, I still have to pay taxes and in my country I pay taxes every time I buy or sell (very logic, right?).
I may also have to pay 10% on the profit I make (new system, not yet in place).
I will pay approximately $78 in taxes (not taking the 10% on profit into account), so for me this is a guaranteed loss actually.
But for someone else with no tax on buying and selling, it may be a highly probable profit of $40?