Zero Risk Income Portfolio

[shotse]

What do you think about this idea:

Assume you want to create an income portfolio for yourself that generates income from high yielding dividend stocks. But, you don't want to assume all the risk with holding a stock, but want the benefit of that high yielding dividend. My idea was to buy and short the stock at the same exact price. What this will do is protect your income portfolio from stock price fluctuations in the market.

For Example:

Stock - ABC
Price - $18.75
Dividend Per Quarter - $0.25

Your order will be as follows:

Conditional - One Triggers All Order

Buy 100 shares of ABC
Limit $18.75

Short 100 shares of ABC
Limit $18.75

As we all know trading isn't free and there are commissions, exchange fees, capital gains tax and dividend taxation.

But in theory would this idea work? Is it flawed from the start? What can go wrong? I'm interested in what you have to say and feel free to PM me if you would like.

-Cheers

 

[newwurldmn]

Stock is 18.74 at 18.75. You pay 18.75 and stock goes 18.75 at 18.76 and you sell at 18.75. You paid comissions. Might as well just cut your brokerage a check and close your account.

 

[DontMissTheBus]

What happens on the dividend for the short leg??

Quote from shotse:

What do you think about this idea:

...

 

[seneca_roman]

You owe the divi on the short.

http://www.sec.gov/answers/shortsale.htm

 

[shotse]

Quote from seneca_roman:

You owe the divi on the short.

http://www.sec.gov/answers/shortsale.htm

thank you

 

[tradingjournals]

There is a way to milk the cow, but not the way you approached it. Not everything can be said in public.

 

[DontMissTheBus]

Bull.

Step 1: Look at your 'risk free' arb return.
Step 2: Is it greater than 36.278bps per ann?
Step 3: If yes, then you did something wrong; Go back and check your work.

Quote from tradingjournals:

There is a way to milk the cow, but not the way you approached it. Not everything can be said in public.

 

[tradingjournals]

Quote from DontMissTheBus:

Bull.

Step 1: Look at your 'risk free' arb return.
Step 2: Is it greater than 36.278bps per ann?
Step 3: If yes, then you did something wrong; Go back and check your work.

bull from your perspective, like your post would be bull from another person's perspetive.

What you see depends on where you sit.

That is why seats can fetch a premium.

 

[DontMissTheBus]

I'm going to disagree with that. I think it's the great fallacy of our time that we presume we all sit on the same level.

Maybe I'm right; Maybe I'm wrong - but it certainly isn't a case of differing perspectives.

Quote from tradingjournals:

bull from your perspective, like your post would be bull from another person's perspetive.

What you see depends on where you sit.

That is why seats can fetch a premium.

 

[tradingjournals]

Quote from DontMissTheBus:

I think it's the great fallacy of our time that we presume we all sit on the same level.
.

So you agree with my posts then.