Strategies · Library · Tax arbitrage
§13.2.1Event-driven
Cross-border tax arbitrage with options
A variant of §13.2 Cross-border tax arbitrage
A foreign holder sells the stock before a dividend and writes a deep in-the-money put. If tax credits push put prices up, the put is exercised after the dividend and the holder keeps the dividend plus credit value, matching the stock-loan version.
- Asset class
- Tax arbitrage
- Held for
- Days
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Put price relative to the no-credit upper bound, near a dividend date.
- Entry and exit
- Sell stock and write the put before the dividend; the put is exercised afterwards.
- Sizing
- One stock sale paired with one written put.
How it fails
- Early exercise timing
- Option liquidity
- Tax rule limits
Data it needs
- option prices
- dividend dates
- tax credit rules
ARCANE has no options data or dividend calendars.
How ARCANE uses it
Not usable.
Needs options and shorting.
Filed under the event-driven card
US stocks have tended to rise in the 24 hours before scheduled Fed decisions, whatever the decision. ARCANE’s rule goes further than the paper: position before a dated event only when Alpha’s chance differs from the market’s by a stated margin, and close once the outcome is public.
A paper plan from this card holds 1 to 30 days, stops at 1.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §13.2.1, p. 105 of the SSRN version. Described in our words. Event-driven is ARCANE’s filing, not the book’s.