mssharma

Igor, It this can be done in real trading, then there is some mispricing of options, it appears, see my math. How can one safely make 20% ($1000 on 5$000) without considering trading and tax costs. How is this possible? Take this example (pricing using black scholes model) S=50, volatility =40%, time = 1 yr, risk free rate =3% Strike 60, call is $ 5.05 and put is $13.3 (your example call = 5.0 so close enough) Strike 50 , call is $8.56 and put is $7.1 (your example put is only $5.0) so,there is a $2 difference between the sold call and bought put. Paid $7.0 for put can received only $5 for sold call. This $2 is potential loss in this scenario. Upside is $10 (investment $50), downside $2 (investment $50). So it does look like a costless collar. Or did I miss something, please clarify.