Strategies · Library · Options
§2.52Hedges and structures
Long box
Buy a call and sell a put at one strike and sell a call and buy a put at another, so the payoff at expiry is fixed. Its value is the strike gap, so profit depends on paying less than the gap.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- No market view; it locks a known value at expiry and is used for arbitrage or financing.
- Entry and exit
- Combine a bull call spread and a bear put spread over the same two strikes and expiry. Hold to expiry; the result is the same at any price.
- Sizing
- Four legs, one of each, over two strikes
How it fails
- Profit equals the strike gap less the price paid, so errors in cost or fees remove it
- Early assignment on short American options can break the lock
- Four option legs mean wide combined bid-ask costs
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
No sealed Call matches, since the box carries no view on direction; it is a pricing check only, paper only.
Needs four options legs and has no price view.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.52, p. 38 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.