Arbitrage Trading Strategies

Arbitrage is a trading strategy that tries to profit from mispricing of two related securities by buying the undervalued one and selling the overvalued one.

Sometimes more than two securities can be involved.

Options can provide many different kinds of arbitrage opportunities. For instance, between calls and puts on the same underlying and expiration, between an option and its underlying security, between options traded in different exchanges, or between options on related underlyings.

In ideal case, which rarely happens in practice, an arbitrage position can be set up with absolutely no risk (it is called riskless arbitrage).

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