Ex-Dividend Arbitrage in Option Markets

摘要

We examine the behavior of call options surrounding underlying stock's exdividend date. The evidence is inconsistent with the predictions of rational exercise policy; a significant fraction of the open interest remains unexercised, resulting in a windfall gain to option writers. This triggers a sophisticated trading scheme that enables short-term traders to receive a significant fraction of the gains. The trading scheme inflates reported volume and distorts its traditional relations to liquidity. The dramatic increases in volume of trade on the last cum-dividend day are facilitated by limitations on transaction costs passed by the various option exchanges.