I asked a friend about potential arbitrage, and questions came up about the validity or accuracy of premiums.

I checked some real time quotes this afternoon and the figures allow some profit from arbitrage, albeit small. I figure a return of about 6%/year to expiration, after subtracting commissions, by buying call at asked and shorting put at bid, and shorting stock. Required investment would be margin on short stock (30%) + difference between call and put.

Obviously traders who can trade inside the spread could do considerably better. What is it about GM, a very liquid stock and options that allows even some arbitrage for a public customer? One also wonders how many other such opportunities are out there yielding much better results.

Am I on the trail of something here?

Have you remember to count the dividend payments you will have to pay out on the stock short position?

ahh the penny drops. No free lunch after all.

Probably not in this instance.

A lunch is always free, until the moment before the bill comes in. There's always a bill.

Ha yes its easy to dream but ermm there's always a price. That goes for anything unfortunately..

As people who are caught out by scams learn, there are no free lunches, be very cautious when one is offered.

The key is to find good deals