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A prime example of tax arbitrage is described in the paper Cross-Border Investing with Tax Arbitrage: The Case of German Dividend Tax Credits by Robert L. McDonald (excerpt below). In this case, dividend income can be used to gain tax credits and as a result, the next day dividend drop exceeds the dividend value. German dividends typically carry a tax ...


Fact 1: if you are not good at pricing options, of course you can create a lot of arbitrage opportunities for the rest of the market. It does not matter whether the reason is in dividends or anything else. Fact 2: if you are good in pricing options, you price the dividend effect in advance. Consider the situation of the European calls, and suppose that both ...


Generally no, because 'dividends' are already 'priced into' the options. Which means, if an ATM call cost 0.50, and stock price drops by 1.00(amount of dividend), the ATM becomes OTM, but it may still cost 0.50, because the initial price of 0.50 already factored in the dividend.

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