Hi FDAX,why the Fwd pricing (I understand assumptions on rates and divs) should always be done such thatthe mkt prices of Calls=Puts ?what if a trader doesn't make this adjustment?thks.Related to your post: "More likely, you're forward pricing is too high, looking at the fact that your calls price lower than your puts."Text

Quite ageing post but:You only enter a BOX strategy if you have a scanner that scans this strategy automatically accross all the market, and it so happens that the box will make money, in that case you take the trade, this is called Arbitrage though. As they all say the Box yields the risk free rate...

QuoteOriginally posted by: ManuLondonQuite ageing post but:You only enter a BOX strategy if you have a scanner that scans this strategy automatically accross all the market, and it so happens that the box will make money, in that case you take the trade, this is called Arbitrage though. As they all say the Box yields the risk free rate...I have seen people enter into a short box because they needed cash and the a box was a way for them to obtain artifical financing at the rate better then what they could normally borrow at.

QuoteYou only enter a BOX strategy if you have a scanner that scans this strategy automatically accross all the market, and it so happens that the box will make money, in that case you take the trade, this is called Arbitrage though. As they all say the Box yields the risk free rate.This is a ridiculous statement. When traded as such, boxes are financing strategies and are sometimes used to close open interest. While it certainly is not a bad idea to monitor the market for arb opportunities, there are many markets that do not have posted bids & offers (OTC markets & futures markets). Boxes trade in those markets. And for equity option markets, I think that it will be a long time before four legs of a box come into line as a do. More likely is that one leg is a working order that can be combined with another option for a spread or conversion.I don't recall anyone saying the box yields the risk free rate. More often it represents the market's aggregate financing costs which is closer to the appropriate LIBOR level. I reply like this because it is posed as an authoritative response (you ONLY enter..., "this is called Arbitrage") with information that is not entirely accurate.

Well that's probably true, as a matter of fact I have done any box. In my world there are stringent margin requirements anyway, so even if I pocket the trade credit I wouldn't be able to use it There is also the spread of course !

I would dare say that -apart from arbitrage opportunities such as those described by ManuLondon- Box dealing is 100% a financing strategy, when all other limits and counterparty lines are already used. One chooses to borrow money at a certain interest rate (implied by the Box pricing) or chooses to lend the money by offering to be the counterpart in the deal, in order to finance his operations or (in the case of the 'lender') to place any excessive liquidity.These are the same reasons that one would go in the money-markets to place deposits, deal in REPO's, or trade FX swaps. I think I would use Boxes mostly in such cases.