Short Sell and buy to get a dividend.

[JSim]

Is it possible, or better yet legal, to buy and short sell a stock at the same time just to get a dividend?

Hypothetically if you do both at the same time the only monetary loss you stand to lose is the brokers fees. This is of course assuming you can buy to cover and sell at the same cost.

I am just starting to learn about trading on a margin and short selling so i am not educated on the intricacies just yet. Thanks in advance

 

[kashirin]

yes, of course it's possible
we all do that

that's the easiest way to make your broker rich

 

[stock777]

We used to do that before last week , when they changed the rules.

 

[JSim]

Quote from stock777:

We used to do that before last week , when they changed the rules.

Any chance you could elaborate on this? I'd love to read any related articles you have.

 

[rmorse]

Quote from JSim:

Is it possible, or better yet legal, to buy and short sell a stock at the same time just to get a dividend?

Hypothetically if you do both at the same time the only monetary loss you stand to lose is the brokers fees. This is of course assuming you can buy to cover and sell at the same cost.

I am just starting to learn about trading on a margin and short selling so i am not educated on the intricacies just yet. Thanks in advance

The long side in account "a" would received the dividend
The short side in account "b" would owe the dividend.
Where would your profit be from?

 

[efficiency]

Dividend capture (long only) is "iffy" due to the specialist/mm reducing by the amount of the dividend.

Adding a short leg does NOT neutralize price movement due to this reduction PLUS slippage (spread, commission AND owing the dividend to the party borrowed from).

A DNR order probably wouldn't fill unless you've got some size. Sorry, you don't appear to be so. In trading, dividends are gravy, not the meat.


All in all, you're trying to be a little too clever.

 

[Bob111]

here is another fun part,(that will make IRS happy):

http://en.allexperts.com/q/Tax-Planning-3256/2010/7/Tax-treatment-short-sale.htm

Payments in lieu of dividends. If you borrow stock to make a short sale, you may have to remit to the lender payments in lieu of the dividends distributed while you maintain your short position. You can deduct these payments only if you hold the short sale open at least 46 days (more than 1 year in the case of an extraordinary dividend as defined below) and you itemize your deductions.

 

[JSim]

Quote from rmorse:

The long side in account "a" would received the dividend
The short side in account "b" would owe the dividend.
Where would your profit be from?

That's what i thought initially. When short selling was explained to me i was told it was the "polar opposite" of buying. Having not read anything about dividends in a short sale i was unsure.

Quote from efficiency:




All in all, you're trying to be a little too clever.

I have been told this before

Quote from Bob111:

here is another fun part,(that will make IRS happy):

http://en.allexperts.com/q/Tax-Planning-3256/2010/7/Tax-treatment-short-sale.htm

Now from this statement it appears that the dividend will cancle out only if i hold the stock for under 45 days. Im going to read this whole thing now though.

 

[JSim]

Quote from rmorse:

The long side in account "a" would received the dividend
The short side in account "b" would owe the dividend.
Where would your profit be from?

That was my initial thought. I was told that Short selling is basically a polar opposite of buying in all respects.

Quote from efficiency:

All in all, you're trying to be a little too clever.

I have been told this before, funny how it always in in conjunction with stock trading.

Quote from Bob111:

here is another fun part,(that will make IRS happy):

http://en.allexperts.com/q/Tax-Planning-3256/2010/7/Tax-treatment-short-sale.htm

This appears that you are not required to repay the dividend on a short sell if you keep the short sale open for 45 days +. I'm going to read this article now.

 

[rmorse]

This appears that you are not required to repay the dividend on a short sell if you keep the short sale open for 45 days +. I'm going to read this article now. [/B][/QUOTE]

I don't think the IRS article says that. I believe it says you can't expense the dividend unless you meet the holding period,however you can add it to the cost of the short sale. Either way, there is no way to profit from such a trade. You only lock in a loss from interest and comm.