swing trades on DIA/YM IWM/TF and dividends

Discussion in 'Trading' started by luisHK, Jan 11, 2012.

  1. luisHK



    I'm afraid the problem is more familiar to offshore traders, but any constructive info will be welcome.

    If not paying tax on capital gains but suffering a 30% witholding tax on dividends, what would you rather swing trade for a few days/weeks hold trades, DIA or YM, IWM or TF ?

    The problem when holding long term the futures is over the course of the year we miss the whole of dividends but only 30% with the ETF. Yet on a few days only trade on DIA going through ex div date, the 30% witholding tax might hurt more than the underperformance of the futures on the ETF over the year. But it's a monthly dividend payment, not that painful.

    IWM is quarterly, so there's a much bigger dividend payments and subsequent loss in witholding tax on those dreadful days.

    Also what happens when you're short DIA, or long the inverse ETF ?

    Executions costs with IB are cheaper to trade DIA or IWM than their futures when adding liquidity (at my low volume at least)

    I'm as confortable trading the futures as the ETFs and am talking about positions using no to little leverage (below 2x anyway).

    What is your take on the topic, and what other points should I consider ?
  2. luisHK


    Thanks Jeb9999, I had a look earlier at this link but it seems I have to work more seriously on it...

    Does it mean that a buy and hold strategy using YM for instance, and not messing up with the rollover date, should bring the same profit as buying and holding DIA ( I though YM is underperforming as long as the interest are very low, but your link and yourself seem to say it's equal )
  3. Why would you think that low interest rates make YM underperform? You get to buy YM at the proper discount to the cash Dow index.

    If DIA and YM didn't generate the same profit/loss the arbs would step in and arb out the difference.

    Keep in mind that the DIA ETF has a 0.18% expense ratio and YM rollover will cost you spread and commissions 4 times a year (unless you do longer dated contracts).

    ES is a better choice than YM for large cap trades.