Dividend portfolio with margin and hedge

T

Traderx30

From business school I learned about hedging the use of leverage to boost returns. Now I was thinking if it is possible to use margin to buy high dividend stocks to boost my income stream and use options and short sale of th dividend stocks to protect from all downside moves so my portfolio with be neutral to daily fluctuations.


Is this reasonable? Or the fees associated with the strategy will eat me alive?
 
Quote from Traderx30:

From business school I learned about hedging the use of leverage to boost returns. Now I was thinking if it is possible to use margin to buy high dividend stocks to boost my income stream and use options and short sale of th dividend stocks to protect from all downside moves so my portfolio with be neutral to daily fluctuations.


Is this reasonable? Or the fees associated with the strategy will eat me alive?
More...

Remember and learn something really quick: If it were simple and easy, everyone would be doing it.

Yes, you could use margin to buy high divy stock and use options to hedge individual positions. But keep in mind, you will be paying a premium to purchase puts (assuming that's how you'll be using options to hedge it) which will eat right into your income stream. You could sell upward calls against it, to pay for the puts, creating a collar. You'll also have commission (obviously) and you will have a margin interest to pay as well.
 
Did you take that derivatives class that explains how dividends affect the pricing of options?

Quote from Traderx30:

From business school I learned about hedging the use of leverage to boost returns. Now I was thinking if it is possible to use margin to buy high dividend stocks to boost my income stream and use options and short sale of th dividend stocks to protect from all downside moves so my portfolio with be neutral to daily fluctuations.


Is this reasonable? Or the fees associated with the strategy will eat me alive?
More...
 
Quote from TraderBoy23:

Remember and learn something really quick: If it were simple and easy, everyone would be doing it.
More...

What "everyone" is doing = completely worthless.
 
Quote from Traderx30:

From business school I learned about hedging the use of leverage to boost returns. Now I was thinking if it is possible to use margin to buy high dividend stocks to boost my income stream and use options and short sale of th dividend stocks to protect from all downside moves so my portfolio with be neutral to daily fluctuations.


Is this reasonable? Or the fees associated with the strategy will eat me alive?
More...

The kind of dividend stocks this would work with...
Stocks no one has ever heard of...
Are mid to low volume and have no options trading.

So start by throwing out the options...
Options trading is a full time expertise... not a hobby.
 
Quote from DeeDeeTwo:

The kind of dividend stocks this would work with...
Stocks no one has ever heard of...
Are mid to low volume and have no options trading.

So start by throwing out the options...
Options trading is a full time expertise... not a hobby.
More...


From what I took from his post I don't think he's trading the options. I think* what he's wants is this:

To leverage out on high divy stocks,
Hedge the the stock position by using options (probably with puts),
Collect the dividend and unwind the rest of the position.

What a perfect world! ;)
 
Quote from Traderx30:

Or the fees associated with the strategy will eat me alive?
More...

Yes. Consider the fact that portfolio protection is expensive, and even more so if you are trying to protect leveraged equities. Add to that the fact that margin is not free. You'll pay for it.

Your overall yield probably won't beat treasuries, and you'll be putting in a lot more work with the greater risk of screwing up somewhere along the line.
 
Quote from Traderx30:

short sale of th dividend stocks to protect from all downside moves so my portfolio with be neutral to daily fluctuations.
More...
With a short sale you are responsible for paying the dividends.
 
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