Arbitrage in Tesla Options Across Expiries

This quant interview question is about understanding how call option prices should behave across different expiries on the same underlying and strikes. It puts you in front of a realistic options chain, like you might see on a trading desk, and asks whether the listed premiums are internally consistent with no-arbitrage principles. In the context of quant prep for options pricing interviews, it focuses on spotting violations in the structure of a term surface rather than doing heavy calculation.

It trains your intuition for time value, monotonicity in maturity, and basic no-arbitrage in a discrete options setting. You practice reading option chains, comparing related instruments, and translating theoretical constraints into concrete checks on listed prices. It also sharpens your ability to frame and size a riskless payoff using simple option positions.

This matters for quant interviews because front-office quants and strats are expected to detect mispricings instantly from raw market data. Interviewers use this kind of options arbitrage puzzle to probe whether your options theory is truly internalized and whether you can connect no-arbitrage pricing, market consistency, and trading intuition. It is central to real-world quant work, not just textbook math.

What it tests

In options pricing, the value of an option increases with time to expiration, all else equal. This is because the longer time horizon gives the option holder more opportunities for favorable price movements, and never fewer. The principle is rooted in the concept of time value: additional time cannot reduce the maximum payoff, so the price of a longer-dated option must be at least as high as that of a shorter-dated one with the same strike and underlying. Any violation of this monotonicity in time exposes a riskless profit opportunity, as the market is offering the same right for less money with more flexibility. This relationship holds regardless of the underlying asset's volatility or expected return, as it is a structural property of the option contract itself.