Options Arbitrage

Options arbitrage is a trading strategy that seeks to profit from price discrepancies in the options market. Arbitrage opportunities arise when mispricing occurs between related options, allowing traders to simultaneously buy and sell options to lock in a risk-free profit. Common forms of options arbitrage include the “box spread” and “conversion and reversal” strategies, which involve buying and selling combinations of call and put options.

Example

A trader spots a mispricing between call and put options of the same underlying asset and strikes, executing a box spread to exploit the difference for a risk-free profit.