trade ex divdend

Discussion in 'Strategy Development' started by zen_zen, Jan 2, 2007.

  1. zen_zen

    zen_zen

    i am very new new and would like to verify that


    if i buy fund before ex div date and sell it right on ex date or after ex date i will get the dividend.

    also if i sell/short a fund on or after ex i will also get paid dividend right?

    and if i short a fund before the ex div date and after the annoucement of divdend, I am liable to pay the buyer the upcoming divdend right

    I want to make this concept clear before i move ahead.

    anyone can help thanks so much!
     
  2. Bowgett

    Bowgett

  3. zen_zen

    zen_zen

    Thanks for the link
    i read from sec :
    "If you sell your stock before the ex-dividend date, you also are selling away your right to the stock dividend. Your sale includes an obligation to deliver any shares acquired as a result of the dividend to the buyer of your shares, since the seller will receive an I.O.U. or "due bill" from his or her broker for the additional shares. "

    I am very confused that if i short a stock, before ex div date, does the above mean that I am selling the share plus i have to pay the buy the amount of dividend that is declared? for example, stock abc is $15 div is $.30 if i short 1000 shares of abc before ex div date i need to pay the buyer $300(dividend)

    and get the $15000 worth for selling abc? In other word I only receive $14700?

    also
    "Thus, it is important to remember that the day you can sell your shares without being obligated to deliver the additional shares is not the first business day after the record date, but usually is the first business day after the stock dividend is paid."

    does that mean that the first day I can short the stock without having to pay the dividend to buy will be first business day after payment date?
     
  4. (1) Remember this.............."There's no "free money" with dividends". (2) If you collect a dividend, you can expect to have a capital loss ~equal to the amount of the dividend you receive. (3) If you short-sell a stock before the record date, you can expect to have a capital gain ~equal to the dividend YOU pay to the long position holder of your short-stock.
     
  5. in scenario 3, does the capital gain take the form of the stock price dropping by the amount of the dividend?
     
  6. What if you use options to be able to sell at the price of the day previous to ex div, one day after ex div... once the stock has already gone down to compensate for div?
     
  7. AVID-----The answer is yes. If a company is going to pay a $1/share dividend, your stock will decline $1.
     
  8. EUSDAIKI--------The options market discounts the expected dividend payout. With "large" dividend payouts, the puts will seem to be greatly overvalued and the calls extremely cheap. The options don't "gap" the same way the stock does after the ex-day. Again, there's no free money via the options market with dividends.
     
  9. ic i was a little confused, it looks like that drop takes place overnight going into the ex-date

    i got confused this morning because the stocks in question are illiquid and the drops weren't immediately discernable within the giant opening bar spikes on em. thanks vm for clarifying
     
  10. Thanks for the reply, Im a quite ignorant of the inner workings of option markets... I know only the basic theory.
     
    #10     Jan 5, 2007