I was thinking about the idea of going long the stocks in the Dow that have dividend yields higher than the yield of DIA while shorting the index as a hedge in equal proportion, so the portfolio might be 50% short DIA and 50% long the higher dividend basket; is there a name for this kind of trade?
Long Index components, short index.
- Thread starter kj5159
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In all seriousness, I would nominate,
Butt-Sniffing The Dogs Of The Dow.
Sounds like a winner, to me -- but you could actually back-cast this one, and see how you'd've done. I'll stay tuned to this thread with interest.
And, if you copyright my nomination? Send me dollar, will ya?
Butt-Sniffing The Dogs Of The Dow.
Sounds like a winner, to me -- but you could actually back-cast this one, and see how you'd've done. I'll stay tuned to this thread with interest.
And, if you copyright my nomination? Send me dollar, will ya?
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Be extremely careful with this strategy. The DOW is a price-weighted index where the higher priced stocks make up a larger percent of the index. For example, the DIA dividend yield is currently 2.1%. The largest DOW component that yields less than 2.1% is United Health (UNH), that is 6.1% of the index, yields 1.9% and is priced at $231. The smallest DOW component that yields more than 2.1% is Pfizer (PFE) that is 0.9% of the index, yields 4.1% and is priced at $34.84. So for every 1% that UNH increases, PFE has to increase 6.6% (i.e. $231 / $34.84) to make up for your loss on the UNH short.
"Alligator spread"? "Broker's Wet Dream"?
Seems like the transaction costs would eat you alive.
This sounds like it will just leave you net short the other stocks you didn't long in the dow index, as obviously the longs will be canceled out as you are shoring them in the dow index.
Also as far as the dividend yield its price in the stock, so normally when the dividend is paid out, the stock drops equal to that div amount right afterwards
Also as far as the dividend yield its price in the stock, so normally when the dividend is paid out, the stock drops equal to that div amount right afterwards
In all seriousness, I would nominate,
Butt-Sniffing The Dogs Of The Dow.
Sounds like a winner, to me -- but you could actually back-cast this one, and see how you'd've done. I'll stay tuned to this thread with interest.
And, if you copyright my nomination? Send me dollar, will ya?
You're hired for PR, irregardless of whatever else goes down.