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Course: Options and Strategies

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Option arbitrage

Option arbitrage is a trading strategy that aims to profit from differences in the prices of options on the same underlying asset. It involves buying or selling options to take advantage of differences in the option prices or option premiums that may occur in different markets. The goal of option arbitrage is to lock in a profit without taking on significant risk.

Option arbitrage can be done through several methods, including:

  • Statistical Arbitrage: This involves using statistical models to identify opportunities for option arbitrage.
  • Spatial Arbitrage: This involves taking advantage of differences in the price of an option in different markets. For example, an option that is underpriced in one market can be purchased and sold in another market where it is overpriced.
  • Intermarket Arbitrage: This involves exploiting differences in option prices across different exchanges. For example, a trader might buy an option on one exchange and sell the same option on another exchange where the price is higher.

Option arbitrage can be a complex and technical strategy, and requires a good understanding of options pricing, volatility, and market conditions. In addition, option arbitrage strategies can be sensitive to changes in the market, and traders need to be able to quickly adapt their positions to take advantage of new opportunities or to limit their losses.

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