So we noted an interesting trade yesterday; a customer buys the MS April 45 straddle vs. shorting the GS April 170 straddle, 4:1 for a modest debit.
Why, you ask?
Beats me. There's no real volatility arb here. Goldman's up top, Morgan is down below, and you can see options move pretty similarly. MS trades modestly higher in volatility terms at almost all times. He's paying a high 40's volatility now for MS, vs. selling a low 40's volatility in GS, so looks like that fact is already priced in.
Why, you ask?
Beats me. There's no real volatility arb here. Goldman's up top, Morgan is down below, and you can see options move pretty similarly. MS trades modestly higher in volatility terms at almost all times. He's paying a high 40's volatility now for MS, vs. selling a low 40's volatility in GS, so looks like that fact is already priced in.
So does he know something not readily apparent? It's a pretty intriguing play here. But it's important to note that if these stocks merge someday, this is actually a losing play as the volatility would converge in anything but a cash deal.
