I Found A Way to Arbitrage Your 401(k)

A deep dive into a predictable market phenomena with shockingly profitable results.

If you have a retirement or brokerage account, you may have heard of the term DRIP (Dividend Re-Investment Program). This is a program where you can choose to automatically re-invest dividends right back into the stock. For example, if an investor receives $1 in dividends on a $50 stock, a dividend reinvestment would result in a purchase of an additional .02 shares for each current share owned.

Almost 85% of investor accounts have this plan, so naturally, this creates a predictable trading opportunity for those looking in the right place.

Background

It has been well-documented that in the days leading up to a company’s ex-dividend date, the stock rises and when the ex-date comes, it sells off. For example, if a stock will be paying out $0.50 per share, the stock price will drop on the ex-dividend date. The ex-dividend date is simply the last day an investor is entitled to a dividend payout.

This relationship happens because investors know that they will receive a dividend if they purchase the stock before the ex-dividend date, so they are willing to pay a premium. On the ex-date, investors may drive down the stock price by the amount of the dividend to account for the fact that new investors are not eligible to receive the dividend and are therefore unwilling to pay a premium.

However, that’s not where the edge is.