Assume that I can construct a portfolio and perfectly delta hedge it with no costs at all. The options are priced in accordance with put-call parity. I should earn the risk free rate because I assume no risk haven a perfect delta hedge at all time (right?). Given these unrealistic, academic assumptions, is there anything stopping me from reversing the portfolio and lending at (or very close to) the risk free rate? If I were to implement this strategy in practice (with same assumptions) would that allow me to optain a loan at the risk free rate AND spend the money (maybe on a yacht) or would the entire "loan" be bound in margin reqs by my broker? If margin reqs lock my loan why is that happening? With a perfect hedge I assume no risk and therefore shouldn't put up much margin (or what?). If margin reqs are not locking my loan, why are people not lending this way? Is it simply that they can't hedge perfectly or am I missing something here?
Another related thought: In a realistic setting, could I optain financing at (or close to) the risk free rate by shorting T-Bills and rolling them? Or are margin reqs and/or commision in the way again? If they are why? I don't see much risk being short a T-Bill because we know the (nominal) interest rate and their expiry date is not far into the future. Maybe commisions are way too high?
Hope you can help me out! Probably a pretty basic finance question but I'm having a hard time wrapping my head around this.
Submitted March 14, 2017 at 12:52PM by RForNot http://ift.tt/2n6HtFV
