Put-call-futures parity and arbitrage opportunity in the market for options on gold futures contracts
✍ Scribed by Richard A. Followill; Billy P. Helms
- Publisher
- John Wiley and Sons
- Year
- 1990
- Tongue
- English
- Weight
- 912 KB
- Volume
- 10
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
long the reigning market for gold futures contracts, T introduced gold futures options in October of 1982. Immediate, sustained interest in the new contracts created a liquid market for options on COMEX gold futures contracts.'
Trading in gold futures options occurs in close proximity to trading in the underlying gold futures contracts, which facilitates the expeditious construction of futures/futures options positions. Market liquidity, the close proximity of trading, and the nearly instantaneous availability of price information should serve to mitigate opportunities for arbitrage profits.
The purpose of this study is to ascertain whether arbitrage profits were available to a floor trader utilizing a trading strategy based on the put-call-futures parity relationship by examining a trading strategy within an environment consistent with actual market activity. Simulated trading profits are examined to discover whether they represent deviations from market equilibrium conditions which could have been exploited by an actual trading strategy, or whether they can be explained by other factors.
The earliest examinations of the put-call parity were conducted by and by in the over-the-counter market for equity options. Both studies relied on closing price data and produced inconclusive results regarding market efficiency.
The advent of exchange-traded put options on the CBOE in 1977 allowed to construct data sets comprised of virtually simultaneous transactional prices for fifteen stocks and their options for one day each month over the period from June 1977 to June 1978.