How to avoid a dividend?

OP, I'm in a similar situation as yours, you might be interested in selling atm put on the stocks with the same amount as leverage that you use with underlying (none possibly), it seems to work for indexes, theoritically giving one a smoother ride and slightly overperforming buy and hold.

You can check the link below for monthly puts, there are several variations possible, and much information available on the net about them:

https://www.cboe.com/micro/put/

It might work with some single stocks, although the related litterature is much smaller. I tried selling moc and buy moo to avoid the witholding tax but it can easily get frustrating (I used to do it on a small portfolio though, I usually don't hold stocks for long period and if an ex div date is in the planned holding period I tend to dismiss this pick)
 
Buy an at the money call, sell the same strike put and sell your stock out. You will then be synthetically long the stock. You can then reverse the position after the dividend or simply let the option position exercise back into stock at expiration.
 
OneChicago, thanks for the heads up, I wasn't aware of that.

Onelot, yeh, that's the sort of thing i had in mind. Thanks for clarifying. Basically I sell the stock on close the day before ex-dividend and then buy it back on market open next day, if I got this right.

LuisHK and FSU, interesting ideas involving options as well. If i get the idea right you are essentially suggesting to hedge the gap risk using options? I don't quite understand the thought of selling ATM put, though. Wouldn't it be better to buy ATM call?
 
-dom said:
. If i get the idea right you are essentially suggesting to hedge the gap risk using options? I don't quite understand the thought of selling ATM put, though. Wouldn't it be better to buy ATM call?
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No, i meant to replace long stock by selling atm puts . You don't buy the stock but sell atm puts, monthly in the case of the PUT index, just keep the position until expiration than renew it. On indexes and some claim at least on large cap stocks with liquid options, you should end up with a less volatile equity curve than simply beeing long the underlying, plus you are supposed to do slightly better than being long the underlying and reinvesting div - and in your situation it is tax efficient.

The links below, from the same writer, are an easy and I found clear introduction to the topic, you will than find much information on the net, starting by the CBOE website if you are interested.

http://seekingalpha.com/article/957041-selling-puts-investing-made-easy
http://seekingalpha.com/article/959711-selling-puts-and-calls-a-better-recipe
http://seekingalpha.com/article/1004291-selling-puts-and-calls-dessert-and-coffee
 
-dom said:
Wouldn't it be better to buy ATM call?
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Besides the CBOE has several indexes following atm and otm calls and puts, which can give you an idea on the long term results of each strategy - if repeated mechanically.
 
-dom said:
OneChicago, thanks for the heads up, I wasn't aware of that.
LuisHK and FSU, interesting ideas involving options as well. If i get the idea right you are essentially suggesting to hedge the gap risk using options? I don't quite understand the thought of selling ATM put, though. Wouldn't it be better to buy ATM call?
More...

Not sure if you are directing this question to me, but if you buy the ATM call and Sell the ATM put and then sell your stock out (this spread is called a reversal and can be entered as one trade) you will then be synthetically long your stock, (without your stock). This is the same as being long stock and potentially better (if the stock is hard to borrow you will actually be better off doing this then just being long the stock.) You are doing the at the money options (or in the money put options and the same strike calls) so you are not forced to exercise your long calls to capture the dividend. The dividend amount is synthetically priced into these options. I don't think you would have to give up more than .05 plus commissions to put on this spread.

As mentioned earlier, you can simply let the options expire and you will end up being long the same amount of stock as earlier.
 
-dom said:
Hey everyone,
I currently own a stock that pays dividends. Because of the 30% tax on dividends I would like to avoid receiving dividends and instead sell the stock before dividend date and buy it back after the price drops as commissions amount to less than tax.
How exactly would i go about doing this? When do I have to sell the stock to avoid dividends and what is the soonest that I can buy it back after the price is adjusted? I'm familiar with general terms such as ex-dividend date, etc. but I don't know how to put it all together.
Thanks for help.
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It is always a bad idea to respond to a nonsense post, but I will live dangerously.

Do you think that your stock will close down by exactly the amount of the dividend when it goes exdiv. and will never recover? If so, then I guess given enough years your stock will be worth zilch, assuming it keeps paying dividends. So, if I were you, and thank god i'm not, I'd wait until the price of the stock drops to zero because of all the dividends paid over the years, buy it at zero, and start collecting the dividends.
 
LuisHK, looks very interesting. Thanks for links. This strategy does tend to under perform quite heavily in fast rising market such as the one we just went through, though.

FSU, thanks for clarifying.

Piezoe, I'm well aware of the gap risk and I don't know why you would assume that I think stock will never recover.
 
Base your decision on whether to hold, sell or add based on considerations other than the dividend. If you're not planning to sell, take the dividend and sit tight. Base your decision on whether to engage in schemes intended to hedge against an exdiv drop on how kindly you feel toward your broker.

I have to say this thread has been entertaining at the very least. I've learned about all kinds of new ways to lose money using options. Some of these schemes might actually lose very little as long as your transaction costs are zero.

I'm assuming that you aren't dealing with a massive amount of XYZ that is trading near a high, and you've already decided it is time to sell. Then of course you may want to hedge and eat the transaction costs as you work your way out of the position. That's what hedging is for. It buys time, at a cost, while you unload. Or you could have got yourself into a corner by loading up on something illiquid that you want to dump. Sadly, a hedge in that case is going to cost you dearly, but maybe not as much as not hedging.
 
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