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SHORT BOX

The short box is an arbitrage strategy  that involves selling a bull call spread  together with the

corresponding bear put spread with the same strike prices and expiration dates. The short box is a

strategy that is used when the spreads are overpriced with respect to their combined expiration value.

Short Box Construction

Sell 1 ITM Call

Buy 1 OTM Call

Sell 1 ITM Put

Buy 1 OTM Put

LIMITED RISK-FREE PROFIT

Basically基本上, with the short box, the arbitrager is just buying and selling equivalent spreads and as

long as the net premium obtained for the selling the two spreads is significantly higher than the

combined expiration value of the spreads, a risk-free profit can be captured 获得 upon 在…之上

entering the trade.

Expiration Value of Box = Higher Strike Price - Lower Strike Price

Risk-free Profit = Net Premium Received - Expiration Value of Box

Short Box Payoff Diagram

EXAMPLE

Suppose XYZ stock is trading at $55 in July and the following prices are available:

• AUG 50 put - $2

• AUG 60 put - $7

• AUG 50 call - $7

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