# Dividend Arbitrage

- An options trading strategy that involves purchasing put options and an equivalent amount of underlying stock before the ex-dividend date and then exercising the put after collecting the dividend. When used on a security with low volatility (causing lower options premiums) and a high dividend, dividend arbitrage can create profits while assuming very low to no risk.
For example, suppose that stock XXX is trading at $50 and is paying a $2 dividend in one week's time. A put option with expiry three weeks from now and a strike price of $60 is selling for $11. A trader wishing to structure a dividend arbitrage can purchase one contract for $1,100 and 100 shares for $5,000, for a total cost of $6,100. In one week's time, the trader will collect the $200 in dividends and the put option to sell the stock for $6,000. The total earned from the dividend and stock sale is $6,200, for a profit of $100.

*Investment dictionary.
Academic.
2012.*

### Look at other dictionaries:

**Dividend stripping**— is the purchase of shares just before a dividend is paid, and the sale of those shares after that payment, i.e. when they go ex dividend. This may be done either by an ordinary investor as an investment strategy, or by a company s owners or… … Wikipedia**Dividend payout ratio**— is the fraction of net income a firm pays to its stockholders in dividends: The part of the earnings not paid to investors is left for investment to provide for future earnings growth. Investors seeking high current income and limited capital… … Wikipedia**Dividend**— This article is about financial dividends. For dividends in arithmetic, see Division (mathematics). Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis … Wikipedia**Dividend yield**— The dividend yield or the dividend price ratio on a company stock is the company s total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is often expressed as a… … Wikipedia**Dual-listed company**— Dual listed companies should not be confused with cross listed companies, where the stock of one company is listed on more than one stock exchange. A dual listed company or DLC is a corporate structure in which two corporations function as a… … Wikipedia**Short (finance)**— Schematic representation of short selling in two steps. The short seller borrows shares and immediately sells them. He then waits, hoping for the stock price to decrease, when the seller can profit by purchasing the shares to return to the lender … Wikipedia**List of finance topics**— Topics in finance include:Fundamental financial concepts* Finance an overview ** Arbitrage ** Capital (economics) ** Capital asset pricing model ** Cash flow ** Cash flow matching ** Debt *** Default *** Consumer debt *** Debt consolidation ***… … Wikipedia**Black–Scholes**— The Black–Scholes model (pronounced /ˌblæk ˈʃoʊlz/[1]) is a mathematical model of a financial market containing certain derivative investment instruments. From the model, one can deduce the Black–Scholes formula, which gives the price of European … Wikipedia**Day trading**— This article is about the practice. For the occupation, see Day trader. Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close… … Wikipedia**Outline of finance**— The following outline is provided as an overview of and topical guide to finance: Finance – addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks… … Wikipedia