The recent thread about dividend capture got me thinking ... Could I buy a lot of ITM calls on a dividend stock - let's say Altria for example. Then, I exercise the calls on the day of ex-div...the twist though is that when I exercise, I do so on margin - that is to say, I don't have enough cash to exercise the shares. Then, I hold the shares for a day, sell them, pay off the margin, and keep the dividend? Or is there a flaw in that?
Does this twist on dividend capture work?
- Thread starter Blue_Bull
- Start date
The stock drops by the amount of the dividend on the ex-div date, so to a shareholder a dividend is the same as taking money from one pocket and then putting it into the other.
There's no workable twist! There's no free money here. The fact that you buy the stock on margin is completely irrelevant.
There's no workable twist! There's no free money here. The fact that you buy the stock on margin is completely irrelevant.
Apart from the fact that a dividend is payment to you with your own money (stk drops the amount of the div), you have to buy the shares the day before it goes ex-div in order to get the dividend. There's no way to carry the stock overnight with insufficient margin. So even if there was a free lunch (which there isn't), you're broke 
As I recall -- it is more that 30 years ago -- in the '70's there was a dividend twist that some made a fair bit off. No one got rich but it paid OK. Guys in the business would buy and exercise an in the money call the day before it went X on a five day settlement so as to be a holder of record that lat dividend day. They would sell the stock at or near the close of that day and arrange a "fail to deliver" on the sell side and deliver a day or two late.
In theory the counterparty could recapture the dividend but the Option Clearing Corp. was new and still green and it often did not happen. In a short while DTC became a factor and the world changed. At the time all clearing firms had offices South of Maiden Lane -- The Delivery District" -- and messengers roamed all over the district delivering certificates by had and picking up a check. It was an entirely different era. The were still guys working on The Street that remembered when the American Stock Exchange was "The Curb" and business was conducted OUTSIDE rain or shine. It only came indoors in 1921.
In theory the counterparty could recapture the dividend but the Option Clearing Corp. was new and still green and it often did not happen. In a short while DTC became a factor and the world changed. At the time all clearing firms had offices South of Maiden Lane -- The Delivery District" -- and messengers roamed all over the district delivering certificates by had and picking up a check. It was an entirely different era. The were still guys working on The Street that remembered when the American Stock Exchange was "The Curb" and business was conducted OUTSIDE rain or shine. It only came indoors in 1921.
trading costs, lack of an edge, etc.
as they said, the dividend snaps the valuation of the underlying, there is no free lunch