Short Sell and buy to get a dividend.

Discussion in 'Trading' started by JSim, Jul 19, 2011.

  1. JSim

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

    that's the easiest way to make your broker rich
     
  3. We used to do that before last week , when they changed the rules.
     
  4. JSim

    JSim

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

    rmorse ET Sponsor

    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?
     
  6. 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.
     
  7. Bob111

    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

     
  8. JSim

    JSim

    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.

    I have been told this before :D

    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.
     
  9. JSim

    JSim

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

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

    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.
     
  10. rmorse

    rmorse ET Sponsor

    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.
     
    #10     Jul 20, 2011