This strategy combines stock with a matching put around a dividend. The historical illustration attempts to earn more from the dividend and put exercise than the stock and put cost. Actual dividends, financing, exercise eligibility and transaction costs must be included before a price difference can be called an arbitrage.
Example
Suppose XYZ trades at $90, has a declared ordinary $2 dividend with its ex-dividend date tomorrow, and a matching $100-strike put costs $11 per share. Buying 100 shares for $9,000 and one standard 100-share put for $1,100 costs $10,100. Assume the purchase establishes dividend entitlement, the put permits the intended exercise, and all transactions occur at the stated prices.
After establishing entitlement and subject to the applicable dividend rules, the investor can exercise the put to sell the shares for $10,000. The $200 dividend is paid on its payment date, not automatically on the ex-dividend date. Total assumed receipts are $10,200, leaving $100 before costs and financing. This is illustrative arithmetic, not a guaranteed available or risk-free trade.
Dividend Capturing using Covered Writes
Another way to collect dividends is by using Covered Call. This strategy is detailed in this article.
Why the apparent surplus may disappear
Option prices generally reflect expected dividends and financing. Bid–ask spreads, taxes, exercise timing, special-dividend rules, borrowing and settlement can alter the result. A European-style put cannot be exercised early merely to complete this example. Dividend capture through a Covered Call also retains stock downside and early-assignment exposure.
