Tickersu, I don’t understand this part of your answer. I was thinking that the numerator is (P-) - (P+) because puts increase in value when stock prices decline, so I need to subtract P+, otherwise I’d have a negative hedge ratio… What do you mean by having a negative hede ratio and buy both or sell both?
BTW, thanks for taking the time to reply to so many of our questions, particulary regarding Quant. You’ve been a tremendous help to all of us.
What I think he is saying is a stock prices go up, calls go up, but puts go down. Therefore inversely related. what confuse me is why this is called an arbitrage opportunity because there is no way we can lock values of the stock in. A new ceo can come in tomorrow and the stock could perform completely different than expected