%

Strategy returns

LIMITS TO ARBITRAGE
Bid-ask spread

Number of
contract
(Table 9: Transaction
Costs)

LIMITS TO ARBITRAGE
Bid-ask spread
Returns on short-selling:
Put options
Straddle
Strangle

mid-price

bid-to-ask

difference

mean

std

SR

mean

std

SR

mean

SR

Put F ATM

0.07

0.423

0.166

0.03

0.432

0.07

0.04

0.096

Put N ATM

0.184

1.071

0.172

0.14

1.114

0.125

0.044

0.047

Put F 5%

0.062

0.472

0.131

0.009

0.489

0.018

0.053

0.113

Put N 5%

0.426

1.211

0.352

0.374

1.292

0.289

0.052

0.063

Put F 10%

0.12

0.461

0.261

0.052

0.485

0.108

0.068

0.153

Put N 10%

0.571

1.028

0.555

0.502

1.183

0.425

0.069

0.13

mean

std

SR

mean

std

SR

mean

SR

Straddle F ATM

0.018

0.143

0.126

-0.02

0.147

-0.137

0.038

0.263

Straddle N ATM

0.152

0.286

0.533

0.103

0.293

0.351

0.049

0.182

Strangle F 5%

0.02

0.199

0.102

-0.032

0.207

-0.153

0.052

0.255

Strangle N 5%

0.281

0.522

0.538

0.21

0.555

0.379

0.071

0.159

Strangle F 10%

0.025

0.288

0.087

-0.046

0.308

-0.149

0.071

0.236

Strangle N 10%

0.557

0.452

1.232

0.479

0.494

0.97

0.078

0.262

(Table 10: Impact of Transaction Costs on Option Strategies

Returns)

LIMITS TO ARBITRAGE
Margin requirements
Call
option:

Put option:

Initial margin
For

Marked-tomarket

Maintenance
margin

short call/short put on S&P 500, the CBOE set :and on brokers

Brokers charge additional margin: E-Trade set: and

LIMITS TO ARBITRAGE
Margin requirements
Hair-cut

ratio: