Arbitrage -

: Buying a convertible security (like a bond) and shorting the underlying stock to profit from mispriced options.

While often described as "free money," several factors can erase profits:

Limits to Arbitrage and the Skewness Risk Premium in Options Markets arbitrage

Arbitrage is the practice of simultaneously buying and selling an asset in different markets to profit from a price discrepancy. It is a "risk-free" strategy in theory because the profit is locked in at the moment of the trade, though in practice, it requires extreme speed and sophisticated technology. How Arbitrage Works

Arbitrageurs exploit market inefficiencies—temporary glitches where supply and demand levels differ across exchanges. : Buying a convertible security (like a bond)

: They buy on the cheaper exchange and simultaneously sell on the more expensive one.

: This activity actually helps the market by narrowing price gaps, eventually driving prices toward efficiency. Common Strategies Common Strategies : Buying and selling the exact

: Buying and selling the exact same financial instrument (like a stock or currency) across different exchanges.