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+426 Part IV: Additional Considerations 
+The trader makes 5 points from the stock trade, buying it at 45 and selling it at 50 via 
+the put exercise, and also collects the I-point dividend, for a total inflow of 6 points. 
+Since he loses the 5¾ points he paid for the put, his net profit is ¼ point. 
+Far in advance of the ex-dividend date, a deeply in-the-money put may trade 
+very close to parity. Thus, it would seem that the arbitrageur could "load up" on these 
+types of positions and merely sit back and wait for the stock to go ex-dividend. There 
+is a flaw in this line of thinking, however, because the arbitrageur has a carrying cost 
+for the rrwney that he must tie up in the long stock. This carrying cost fluctuates with 
+short-term interest rates. 
+Example: If the current rate of carrying charges were 6% annually, this would be 
+equivalent to 1 % every 2 months. If the arbitrageur were to establish this example 
+position 2 months prior to expiration, he would have a carrying cost of .5075 point. 
+(His total outlay is 50¾ points, 45 for the stock and 5¾ for the options, and he would 
+pay 1 % to carry that stock and option for the two months until the ex-dividend date.) 
+This is more than ½ point in costs - clearly more than the ¼-point potential profit. 
+Consequently, the arbitrageur must be aware of his carrying costs if he attempts to 
+establish a dividend arbitrage well in advance of the ex-dividend date. Of course, if 
+the ex-dividend date is only a short time away, the carrying cost has little effect, and 
+the arbitrageur can gauge the profitability of his position mostly by the amount of the 
+dividend and the time value premium in the put option. 
+The arbitrageur should note that this strategy of buying the put and buying the 
+stock to pick up the dividend might have a residual, rather profitable side effect. If 
+the underlying stock should rally up to or above the striking price of the put, there 
+could be rather large profits in this position. Although it is not likely that such a rally 
+could occur, it would be an added benefit if it did. Even a rather small rally might 
+cause the put to pick up some time premium, allowing the arbitrageur to trade out 
+his position for a profit larger than he could have made by the arbitrage discount. 
+This form of arbitrage occasionally lends itself to a limited form of risk arbi­
+trage. Risk arbitrage is a strategy that is designed to lock in a profit if a certain event 
+occurs. If that event does not occur, there could be a loss (usually quite limited); 
+hence, the position has risk. This risk element differentiates a risk arbitrage from a 
+standard, no-risk arbitrage. Risk arbitrage is described more fully in a later section, 
+but the following example concerning a special dividend is one form of risk arbitrage. 
+Example: XYZ has been known to declare extra, or special, dividends with a fair 
+amount of regularity. There are several stocks that do so - Eastman Kodak and 
+General Motors, for example. In this case, assume that a hypothetical stock, XYZ, has