292  •   The Intelligent Option Investor
From this equation, it follows that if
PK + Int < Div
your call option has a negative implied time value, and you should sell the 
option in order to collect the dividend. 
This is what is meant by dividend arbitrage . But it is hard to get the 
flavor for this without seeing a real-life example of it. The following table 
shows the closing prices for Oracle’s stock and options on January 9, 2014, 
when they closed at $37.72. The options had an expiration of 373 days in 
the future—as close as I could find to one year—the one-year risk-free rate 
was 0.14 percent, and the company was expected to pay $0.24 worth of 
dividends before the options expired.
Calls Puts
Bid Ask Delta Strike Bid Ask Delta
19.55 19.85 0.94 18 0.08 0.13 −0.02
17.60 17.80 0.94 20 0.13 0.15 −0.03
14.65 14.85 0.92 23 0.25 0.28 −0.05
12.75 12.95 0.91 25 0.36 0.39 −0.07
10.00 10.25 0.86 28 0.66 0.69 −0.12
8.30 8.60 0.81 30 0.97 1.00 −0.17
6.70 6.95 0.76 32 1.40 1.43 −0.23
4.70 4.80 0.65 35 2.33 2.37 −0.34
3.55 3.65 0.56 37 3.15 3.25 −0.43
2.22 2.26 0.42 40 4.80 4.90 −0.57
1.55 1.59 0.33 42 6.15 6.25 −0.65
0.87 0.90 0.22 45 8.25 8.65 −0.75
0.31 0.34 0.10 50 12.65 13.05 −0.87
In the theoretical option portfolio, we are short a put, so its value to 
us is the amount we would have to pay if we tried to flatten the position by 
buying it back—the ask price. Conversely, we are long a call, so its value to 
us is the price we could sell it for—the bid price.
Let’s use these data to figure out which calls we might want to exercise 
early if a dividend payment was coming up.