Short prior to ex-div

Discussion in 'Strategy Development' started by Div Poacher, Mar 4, 2003.

  1. Anyone have any comments on this strategy? I have not been doing this, since it means paying the dividend to a holder.

    I have instead tried buying puts on stocks prior to ex-div. This can work, although it seems like bid/ask on the options makes it difficult to turn a profit. Usually the spread is smaller on the underlying, and that's what makes shorts tempting.

    Many stocks drop significantly for several days after the ex-div date, and there is "room to go" on a short. But then it can be trying, attempting to find a good uptick in there if you waited.

    Basically, I'm just wondering if other div players have found it "worth the price" to go ahead and short prior to ex-div, knowing that you will pay the dividend in the process... :confused:
     
  2. I'm curious about this. Has anyone ever been accidently stuck paying the dividend on a swing trade?
     
  3. def

    def Interactive Brokers

    A stock should open at the previous close less the dividend amount (all thing unchanged).

    Put options will factor in the dividend amount when pricing an option.

    If you are short a stock and thus have to pay the dividend, it should theoretically be breakeven since the amount you have to pay out theoretically will be recouped in the drop of the stock.

    As far as I know, there is no edge in this strategy.
     
  4. Stocks that are in a flat trend, with a lot of people in them "just hanging around for the dividend", can drop by more than the div amount by the close of the ex-date. And they can keep dropping for a few days.

    I guess the question is whether people think it is possible to identify such stocks and accept the cost of paying the dividend while short.