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+424 Part IV: Additional Considerations 
+The stock transaction is a 12-point profit, since the stock was bought at 58 and is sold 
+at 70 via the put exercise. The cost of the put - 11 ¾ points - is lost, but the arbi­
+trageur still makes ¼-point profit. Again, this profit is equal to the arrwunt of the dis­
+count in the option when the position was established. Generally, the arbitrageur 
+would exercise his put option immediately, because he would not want to tie up his 
+capital to carry the long stock. An exception to this would be if the stock were about 
+to go ex-dividend. Dividend arbitrage is discussed in the next section. 
+The basic call and put arbitrages may exist at any time, although they will be 
+more frequent when there is an abundance of deeply in-the-money options or when 
+there is a very short time remaining until expiration. After market rallies, the call 
+arbitrage may be easier to establish; after market declines, the put arbitrage will be 
+easier to find. As an expiration date draws near, an option that is even slightly in-the­
+money on the last day or two of trading could be a candidate for discount arbitrage. 
+The reason that this is true is that public buying interest in the option will normally 
+wane. The only public buyers would be those who are short and want to cover. Many 
+covered writers will elect to let the stock be called away, so that will reduce even fur­
+ther the buying potential of the public. This leaves it to the arbitrageurs to supply the 
+buying interest. 
+The arbitrageur obviously wants to establish these positions in as large a size as 
+possible, since there is no risk in the position if it is established at a discount. Usually, 
+there will be a larger market for the stock than there will be for the options, so the 
+arbitrageur spends more of his time on the option position. However, there may be 
+occasions when the option markets are larger than the corresponding stock quotes. 
+When this happens, the arbitrageur has an alternative available to him: He might sell 
+an in-the-money option at parity rather than take a stock position. 
+Example: XYZ is at 58 and the XYZ July 50 call is at 7¾. These are the same figures 
+as in the previous example. Furthermore, suppose that the trader is able to buy more 
+options at 7¾ than he is able to sell stock at 58. If there were another in-the-money 
+call that could be sold at parity, it could be used in place of the stock sale. For exam­
+ple, if the XYZ July 40 call could be sold at 18 (parity), the arbitrage could still be 
+established. Ifhe is assigned on the July 40 that he is short, he will then be short stock 
+at a net price of 58 - the striking price of 40, plus the 18 points that were brought in 
+from the sale of the July 40 call. Thus, the sale of the in-the-money call at parity is 
+equivalent to shorting the stock for the arbitrage purpose. 
+In a similar manner, an in-the-money put can be used in the basic put arbitrage. 
+Example: With XYZ at 58 and the July 70 put at 11¾, the arbitrage could be estab­
+lished. However, if the trader is having trouble buying enough stock at 58, he might