Quote Originally Posted by ;
{quote} , thank you for this. Do you know the mkts where this is still possible?
Well, long dated options that involve the traditional funding currencies (e.g. JPY and CHF) is where this generally holds. And no, a trade that Colm was describing doesn't involved buying spot and using the actual carry to offset the cost of the option as someone has suggested. That would be rather silly. It means simply the following (these numbers aren't real): say I buy 2y CHFNOK 6.0 puts; the ATM fwd is at 6.625 mid and the option costs 1.5%. Suppose, for whatever reason, with the 1y ATM fwd at 6.495, the 1y 6.0% puts currently cost the very same 1.5%. In this case, the slide (could be both in the term structure of the fwds and the vol) entirely pays for 1y of holding the option, making the optionality free. In reality, you generally need to go further out and use some really juicy EM crosses to get such an effect. Free lunches are not common.