Dividend Arbitrage

Dividend Arbitrage is buying a stock before the ex-dividend date and selling an equivalent amount of the underlying’s stock futures or buy a put after the ex-dividend date. The strategy is used by arbitrageurs to purchase put options and proportionate number of stock before the ex-dividend date. The next step is to wait till the dividends are paid, and then exercise the put after collecting the dividend. The profit is the difference between dividends received and total value of put options bought.