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I think I've found an arbitrage opportunity. Right now, I can do this (first via CME, second via SAXO) :

BUY CADUSD AMERICAN PUT 10200 STRIKE EXPIRING 16 MAR 2011 FOR 53 pips USD

SELL USDCAD EUROPEAN CALL 0.9805 STRIKE EXPIRING 16 MAR 2011 FOR 68 pips CAD

The first trade costs me 530 USD, the second one gives me 680 CAD, for a net profit of 163.52 USD (assuming USDCAD at 0.9805). Now:

  • If USDCAD decreases (meaning CADUSD increases), both options expire worthless.

  • If USDCAD increases (meaning CADUSD decreases), it appears that my long put gains value faster than my short call (just barely, due to the currency difference).

Is there something I'm not seeing here?

Of course, the prices I'm seeing might not be tradeable, and there are some minor expiration date issues, but, assuming I could do this, is it arbitrage?

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1 Answer 1

the difference in the expiration dates is enough to explain the source of what appears to be arbitrage.

Given that there is a difference, it's not abritrage(riskless profit) because there is risk.

However, that doesn't mean that you can't make money doing thsi trade. It just means that you might lose as well(not riskless).

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OK, but since I'm buying an American option, I can force exercise it early (or just sell it), so the difference in expiration times (which is only a few hours I believe... same day) shouldn't be relevant? –  barrycarter Feb 26 '11 at 23:33
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