Wednesday, June 29, 2011

I Traded an Arb, Today -- Did You?

The ELMG summary is included below.


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I traded an arb today, did you? If you didn't, I can show you the tool I used -- and better yet, you can have it too.

We did two trades today. Let's start simple, and then get more complex.

1. Check out the executed trades from LVP in stock ELMG:

You'll see the two lot:
Sell Sep 25 calls @ $8.00
Buy Sep 30 calls for $3.00

Yup, that's selling a $5 call spread @ $5.00. Max Gain is $5.00, MaxLoss is $0 (and commissions).

2. Getting it even better and bigger:
You'll see a thirteen lot:
Sell Sep 25 calls @ $8.00
Buy Dec 30 puts for $0.05

What you don't see is the purchase of 1,300 shares for 32.94. That makes the puts a synthetic call -- specifically, paying $2.99 for the Dec 30 calls.

So the trade becomes:

Sell Sep 25 calls @ $8.00
Buy Dec 30 calls for $2.99

So this not only sells a $5 call spread @ $5.01, but it also owns the Dec options against a Sep sale. Now that's sweet... The Livevol™ Pro Options Tab is included below.

For those of you wondering what this stock is -- it's a takeover for $33 by HON. So, in this example we're dealing with a very low probability that something actually happens to take the stock below $30 -- but it was a free bet.

How Did We Find It?
Livevol® has an advanced Market Scanner called the Livevol® Report Builder (LVRB). One of the scans we've created searches for Vertical spreads (credits and debits) for an arb (so $0.00 or less for debits or GT strike diff for credits). Here's a snapshot of what my dashboard looks like:

It's blank b/c I am hiding the results (boo!). The point is, we have multiple scans open, refreshing at whatever interval we choose, showing us results that satisfy our strategies. Other arbs we hunt for are time spreads for even (or less) and butterflies for even (or less).

Of course, the true power of the LVRB isn't the rare arb, but rather more sophisticated strategies involving vol, deltas, calcs, reversals, conversions, boxes and anything else you fancy. Real-time access to the entire optionable market, strike-by-strike, with access to Livevol® calcs, vols, historical, earnings, dividends and fundamental data.

To read about LVRB, please go here:

To get a trial to LVRB, please e-mail support "at" The cost is $500 for a one-month trial.

This is trade analysis, not a recommendation.

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