Dividend Capturing

Discussion in 'Trading' started by huby, Jul 7, 2001.

  1. huby


    Has anyone ever tried the strategy of dividend capturing? (Buying a stock right before the ex-dividend date, collecting the dividend, and then selling the stock). I've heard that right after the dividend is payed out the stock will trade that much lower the next day. Is this true? If it is wouldn't that kind of make the strategy worthless?

    Or.....what if you had two accounts and bought the stock in one and shorted it in another? Is this possible/legal? If you could do it, technically you'd have a zero risk position. The only way your return would go down is on slippage and commissions. This is probably not the most exciting strategy in the world, but if you could do it once a week making 1% or so on your investment, you'd have a pretty darn nice zero risk return by the end of the year. This would be a pretty cool investment idea for a long term account.
  2. Just for your info if you are short the stock on dividend date than you owe that much to your brokerage firm on the payout date. So you would have 0 risk and zero reward.

    There is a way of profiting from this and that's your clue.
    Which is something I do but I'm not about to post something like this on a message board (only works when small # of guys do it)

  3. Babak


    Any strategy based on capturing dividend needs the stock to be moved *only* by that event.

    However, securities are susceptible to a host of different factors, news, general market trends, etc.

    A few hedge funds do take advantage of dividend 'mispricing' where to different holders the dividend has different value (Buddy Fletcher's fund is one of them) because of structural factors such as taxation.

    However, this strategy has been abandoned mostly since it was a flaw that the market has eliminated by its discovery.
  4. dozu888


    There is no free lunch on Wall Street.
  5. There are plenty of free lunches, it's just that the menu changes often.

  6. Huby,

    One way to do this and avoid owing the dividend on the short side is to use Bulllets.

  7. One I agree there are plenty of free lunches -but you have to realize that the menu does change. Everyone is constantly looking for that free lunch and than it isn't so great when too many people find it.

    The bullets wouldn't work so to speak as they expire on the close, but a conversion I guess would. Never thought of that.

    There is one other strategy I know of for this.

  8. def

    def Sponsor

    the dividend would be priced into the forward value and thus into any conversions/reversals (bullets). thus this shouldn't work.

    Also on the day ex-date, the previous opening stock price is adjusted down by the dividend amount. With decimals it is now adjusted to the exact amount which takes any arb away as well.

    rtharp, i'm not asking you to reveal your strategy, but my guess if a sure thing really exists, it can't be very profitable.
  9. I have to give congrads to the traders who are writing on this thread they are thinking out of the "box" so to speak. Thinking this way(ie differently)is how to really push your trading to new levels.

    Actually What I occassionally do with dividend capturing is already well known by most professional firms already. I'd say about 50% of the time it doesn't work anymore as the other side realizes what is going on and misprices things to take on the risk.