open long and short positions for dividends?

Discussion in 'Stocks' started by up300konngz, Sep 13, 2020.

  1. Say i only want to collect dividends from a company. I dont want to lose or gain based on the movement of the stock price.

    Can I open long and short positions, and then just collect the dividends on my long position? I understand ill get paid dividends for my short position too, but Ill have to pay those to the person I borrowed the shares from, which is fine w/me.

    Is this possible, or am I missing something?
     
  2. newwurldmn

    newwurldmn

    totally possible. Every hedge fund engages in risk free dividends. And the people who sell the options to them are none the wiser
     
  3. Robert Morse

    Robert Morse Sponsor

    No, this is called a boxed position. Any boxed position should be reconciled. If not, you will get the dividend on the long side and pay it out on the short side for a wash.
     
    drm7, Nobert and up300konngz like this.
  4. Robert Morse

    Robert Morse Sponsor

    newwurldmn-He asked about a long/short equity position not a dividend spread with options. Even Dividend spreads are hard to clear as there are operational risks and a capital requirement on some of these at the clearing level that many clearing brokers do not want to float.
     
  5. BMK

    BMK

    You can't have be long and short the same stock in the same account at the same time. The positions will cancel each other out.

    If you are long the stock, it is not possible to sell the stock short. The broker will sell the stock that you own. If you are short the stock, and you place an order to buy, that order will either be rejected, or it will be treated as a "buy to cover" order.

    You will not "get paid dividends for your short position."

    When you are short stock, you don't collect dividends. But you still have to pay the dividend out of your own pocket.

    Why? Because you only borrowed the stock in order to sell it. You don't own it.

    The company will pay only one dividend: to the guy who bought the stock from you, after you borrowed it and sold it short.

    You don't get a dividend, 'cause you don't own the stock. But guess who also expects to get a dividend? The guy you borrowed the stock from. He still owns it, and he wants his dividend.

    Guess who has to pay that dividend?

    You could be long the stock in one account and short the stock in a different account, and it's still going to come out as a wash. You would collect a dividend in one account, and have to pay it in the other account.

    BMK
     
    drm7 likes this.
  6. Tradex

    Tradex

    You can still use covered calls to get the dividends, just buy the stock (let's say 1,000 shares) and write 10 deep-in-the-money call options on it.

    Just make sure the premiums you receive when selling the calls take into account any cost you will incur in case of an early assignment.
    The premiums received plus the call strike price should of course be greater than the current stock price (or at least be equal).

    On ex dividend date, you simply sell your 1,000 shares, buy back the short calls (at no loss) and then you wait to collect your dividends.
     
    Last edited: Sep 13, 2020
  7. BMK

    BMK

    It sounds like you are suggesting that you would buy the stock before the ex date, and simultaneously write calls with an expiration that is after the ex date.

    And that might work, in the sense that you are creating a position that has no risk from the movement of the stock. But that type of position has a very high probability of early assignment. If the call is assigned before the ex date, you won't get the dividend.

    BMK
     
  8. Tradex

    Tradex

    Yes, as explained above, if assigned the trader won't get the dividends, that's the only "risk" with this strategy.
     
    Last edited: Sep 13, 2020
  9. Sig

    Sig

    Has anyone ever not been assigned in this circumstance for anything more than a couple hundred dollars in profit?
     
  10. Banjo

    Banjo

    :D