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BOX SPREAD

The box spread, or long box, is a common arbitrage strategy that involves buying a bull call spread
together with the corresponding bear put spread, with both vertical 垂直的 spreads having the same
strike prices and expiration dates. The long box is used when the spreads are underpriced in relation to
their expiration values.
Box Spread (Long Box) Construction

Buy 1 ITM Call
Sell 1 OTM Call
Buy 1 ITM Put
Sell 1 OTM Put

LIMITED RISK-FREE PROFIT

Essentially, the arbitrager is simply buying and selling equivalent 相等 的 spreads and as long as the
price paid for the box is significantly below the combined expiration value of the spreads, a riskless profit
can be locked in immediately.
Expiration Value of Box = Higher Strike Price - Lower Strike Price
Risk-free Profit = Expiration Value of Box - Net Premium Paid

Box Spread (Long Box) Payoff Diagram

EXAMPLE

Suppose XYZ stock is trading at $45 in June and the following prices are available:

• JUL 40 put ­ $1.50 
• JUL 50 put ­ $6 
• JUL 40 call ­ $6 
• JUL 50 call ­ $1

Buying the bull call spread involves purchasing the JUL 40 call(6) for $600 and selling the JUL 50
call(1.0)for $100. The bull call spread costs(5): $600 - $100 = $500
Buying the bear put spread involves purchasing the JUL 50 put(6) for $600 and selling the JUL 40
put(1.5)for $150. The bear put spread costs(4.5): $600 - $150 = $450
The total cost of the box spread is(9.5): $500 + $450 = $950
The expiration value of the box is computed to be(10): ($50 - $40) x 100 = $1000.
Since the total cost of the box spread is less than its expiration value, a riskfree arbitrage is possible
with the long box strategy. It can be observed 注 意 到 that the expiration value of the box spread is
indeed 真正的 the difference between the strike prices of the options involved.
If XYZ remain unchanged at $45, then the JUL 40 put and the JUL 50 call expire worthless while both
the JUL 40 call and the JUL 50 put expires in-the-money with $500 intrinsic value each. So the total
value of the box at expiration is: $500 + $500 = $1000.
Suppose, on expiration in July, XYZ stock rallies to $50, then only the JUL 40 call expires in-the-money
with $1000 in intrinsic value. So the box is still worth $1000 at expiration.
What happens when XYZ stock plummets 大跌 to $40? A similar situation happens but this time it is the
JUL 50 put that expires in-the-money with $1000 in intrinsic value while all the other options expire
worthless. Still, the box is worth $1000.
As the trader had paid only $950 for the entire box, his profit comes to $50.

COMMISSIONS

As the profit from the box spread is very small, the commissions involved in implementing 实 现 this
strategy can sometimes offset all of the gains. Hence 因 此 , be very mindful 留 心 的 about the
commissions payable when contemplating 打算 this strategy. The box spread is often called an alligator
鳄鱼 spread because of the way the commissions eat up the profits!

SHORT BOX

The box spread is profitable when the component 组成的 spreads are underpriced. Conversely 相反的 ,
when the box is overpriced, you can sell the box for a profit. This strategy is known as a short box.