What Is Arbitrage In Option Trading

According to investopedia.com the definition of arbitrage is "the simultaneous purchase and sale of an asset in order to profit from a difference in the price. This usually takes place on different exchanges or marketplaces."

For example, a stock that is being traded on an American index is also being traded on a European index. An investor could buy the stocks from an index where the stock is undervalued and them sells the stock short where it is overvalued making a profit from the difference.