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An Option arbitrage strategy used when the underlying is under priced.
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The box spread, also called long box, is a popular option arbitrage strategy. The strategy is used when the underlying is underpriced in comparison to their options. It involves buying a bull call spread and a bear put spread with same strike prices and expiration dates. The box spread is executed by Buying 1 ITM Call, Selling 1 OTM Call, Buying 1 ITM Put and Selling 1 OTM Put of the same expiration dates.
The box spread is a riskless profit strategy wherein you can eliminate risk and earn a small profit from the spread.
Suppose SBI is trading at Rs 300 in April. You believe it is underpriced in relation to its options. To execute box spread, you can-
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