Options Arbitrage - Definition
The use of stock options to reap marginal risk-free profit by locking value created through price differential between exchanges or violation of Put Call Parity.


Options Arbitrage - Introduction
What exactly is arbitrage? Arbitrage is the opportunity to make risk-free profit by simultaneously buying an underpriced asset and selling it at market price. Arbitrage has been regarded as the "holy grail" of the capital markets and options arbitrage certainly is the holy grail of free profits for the privileged options traders in options trading. Arbitrage in stock trading typically makes use of price differential of the same security between international markets. Options arbitrage, however, has a lot more opportunities than stock arbitrage as one could not only make use of price differential between exchanges but also violations in Put Call Parity between stock options. In fact, options strategies have also been created to take advantage of specific options arbitrage opportunities and we shall be exploring some of these options arbitrage strategies in this tutorial. The only drawback of options arbitrage is that profitable opportunities are hard to come by and gets filled out extremely fast by computers used by big financial institutions that are monitoring for such opportunities at all times. Even if a profitable opportunity is discovered, the commissions involved in such complex options arbitrage strategies usually takes all the profits away. That is why options arbitrage is commonly the realm of professional options traders who need not pay broker fees such as Market Makers and floor traders.

Be warned that this truly is advanced, complex options trading knowledge and not recommended for beginner options traders.