Dividend mining

[total_keops]

Quote from GTS:

(yawn) Did you actually read the "plan" that the OP wrote?

I've done dividend capture in a SEP IRA account in certain thinly traded stocks that had ex-dividend patterns that can be exploited.

Didn't see any mention of any such edge in rozar s'macco's plan.

Did.
The only thing that I saw working was high yield (15-20%) Canadian oil trust where you go long the trust, long a call and short a put (short synthetic). Therefore market neutral but you get to keep a part of the dividend if it's higher than the cost of the premium. I used to have some 8% things going on but it's gone, yields are lower now.
I was fun because after doing it I read the book from Kathy Lien and Boris Schlosberg where another guy was doing it. We both figured it out.

 

[riskfreetrading]

Quote from total_keops:

Did.
The only thing that I saw working was high yield (15-20%) Canadian oil trust where you go long the trust, long a call and short a put (short synthetic). Therefore market neutral but you get to keep a part of the dividend if it's higher than the cost of the premium. I used to have some 8% things going on but it's gone, yields are lower now.
I was fun because after doing it I read the book from Kathy Lien and Boris Schlosberg where another guy was doing it. We both figured it out.

Synthetic short is the opposite of what is written. Typo?

 

[spindr0]

On the surface, chasing a dividend is an exercise in futility because they're paying you with your own money (the stock's price is reduced by the amount of the dividend). And to add insult to injury, it results in a taxable event yet there was no profit achieved from the event.

There are situations in pairs trading where it's a reasonable strategy to go after the dividend. But that's only " IF " the stock soon to go ex-div is the undervalued leg. Of course you have to be able to generate the valuations and the believe in regression to the mean.

Frankly, such dividend capture is icing on the cake. The real profit comes from the contraction of the spread b/t the components.

Don't be taken aback because your dividend capture idea has no edge. You have to kiss a lot of bad strategies before you find a good one

 

[GTS]

Quote from spindr0:

On the surface, chasing a dividend is an exercise in futility because they're paying you with your own money (the stock's price is reduced by the amount of the dividend).

I always cringe when I read something like this although for the most part I agree with it, it still rubs me the wrong way.

I'm talking about the statement that the stock price is reduced by the dividend amount. Stock prices are set by supply and demand. They may adjust the closing price to reflect the dividend paid but when the stock opens its price is set by the market.

In a perfectly efficient market, the stock would open/trade exactly lower by the dividend amount versus where it otherwise would have opened but because prices are determined by imperfect humans that may not always be the case.

 

[rickf]

There are ways of "capturing" dividends using DITM options but I've never tried it -- just seemed like too many moving parts to me.

I might try it if there was some major special dividend, though. But regularly? Too much work.

 

[rozar s'macco]

Hey thanks for the info. I just did 40 hrs worth of research in the time it took to read the replies to this thread. Am I crushed? Well, a bit.

But I saved 39.8 hrs in the process so thanks for the week off fellas!

 

[spindr0]

Quote from GTS:

I always cringe when I read something like this although for the most part I agree with it, it still rubs me the wrong way.

I'm talking about the statement that the stock price is reduced by the dividend amount. Stock prices are set by supply and demand. They may adjust the closing price to reflect the dividend paid but when the stock opens its price is set by the market.

In a perfectly efficient market, the stock would open/trade exactly lower by the dividend amount versus where it otherwise would have opened but because prices are determined by imperfect humans that may not always be the case.

You cringe but you agree??

You are confusing change in price due to trades in the stock with a reduction in the stock's price due to it going ex dividend. On ex-div morning, the closing price is reduced by the amount of the dividend. You can see this in the pre-market. Once trading begins, it can go anywhere from there.

 

[spindr0]

Quote from rickf:

There are ways of "capturing" dividends using DITM options but I've never tried it -- just seemed like too many moving parts to me. I might try it if there was some major special dividend, though. But regularly? Too much work.

You capture the dividend if you own the stock. Option buyers/sellers get nothing.

There's not going to be any free lunch since dividends are factored into the option prices (see conversions and reversals).

 

[KINGOFSHORTS]

Quote from rickf:

There are ways of "capturing" dividends using DITM options but I've never tried it -- just seemed like too many moving parts to me.

I might try it if there was some major special dividend, though. But regularly? Too much work.

It has to be a covered call.

a DITM covered call will give you some time premium + dividend but you will pay the taxman.

It is simple, just buy the stock and write the equivalent number of contracts (1 = 100 shares)

 

[rickf]

Quote from KINGOFSHORTS:

It has to be a covered call.

a DITM covered call will give you some time premium + dividend but you will pay the taxman.

It is simple, just buy the stock and write the equivalent number of contracts (1 = 100 shares)

Not worried about the taxman -- but as to the CC strategy would you go DITM or WDITM?[1] Would you base your short strike on the delta of the option or something else? Obviously the premium collected needs to offset both the decline in the underlying and any commissions on the trade to be an effective strategy. (I'm still not 'sold' on the strategy - just gathering the facts.)


[1] Way Deep In The Money