# SKC Dividend pairs trading strategy



## skc (29 August 2011)

It's profit and dividend season. This Dividend Pairs Trading strategy is something I've developed over the last 2 reporting seasons 

The premise of the strategy is simple. I do a lot of pairs trading, and I noticed that, whenever I hold a short position in a stock going ex-dividend, I am almost always worst off on the following day. Furthermore, the fall in a company's share price on he ex-date is often less than the full amount of the dividend, and the franking credits are usually "free". 

Now there are plenty of dividend drop-off/stripping strategies around, but in the current market environment a lot can happen overnight and I for one am not comfortable with holding large naked long positions just to pocket the dividends. So this strategy basically combine the dividend stripping approach with a hedge using a similar company to make it somewhat "delta neutral". 

So to execute this strategy...

1. Find a share that's going ex-dividend tomorrow. Preferably you want to look for a company that just had a good profit report, a high dividend yield, high % franking and a share price that hasn't run too hard. This will be the long leg and is opened the day before it going ex-dividend.

2. Find a company to hedge. Preferably, this company should be in the same industry/sector as your long leg, not be going ex-dividend or reporting anytime soon, displaying weak share price strength or a topping pattern, and definitely shouldn't be a takeover candidate. This short leg is opened on the same day as the long leg.

3. Close both legs the following day or two.

Profit margins are slim (~average 1-2%) and are highly dependent on the trader's skill in making the entry/exit and the trader's knowledge of the companies used for both legs of the trade.

A few more things to consider...
- Both legs should also have good liquidity to allow easy entry/exit.
- Since the profit margins are small, you need to use a low cost broker so the effect of commission is minimised.
- Franking credits will be a large part of the strategy, but since the holding period is <45 days, you might only be able to use this strategy for <$5k worth of FC... and once you go over you lose all FC that you didn't hold over 45 days.

I will write a brief journal over the next 2 months and see how it goes. I will stop once the franking credit accumulated = $5k.


----------



## skc (29 August 2011)

*Trade #1*

Long 10,000 EHL @ $1.00. Dividend 3c, 100% franked. Gross div = 4.286c (4.286%)
Short 376 WOR @ $26.65

Capital used = $20K


----------



## sammy84 (29 August 2011)

I like this. Similar to the strategy employed by dividend trader.com.au. Only they short the index as a hedge. Will watch with interest


----------



## skc (29 August 2011)

sammy84 said:


> I like this. Similar to the strategy employed by dividend trader.com.au. Only they short the index as a hedge. Will watch with interest




Yes I would use an index short if I couldn't find a good comparable for the short hedge. But share price movement is often much larger than the index movement so one probably needs to play around with the size of the hedge to account for beta.

Is that website still active? I signed up and the latest newsletter was from Oct 2010?


----------



## sammy84 (29 August 2011)

skc said:


> Yes I would use an index short if I couldn't find a good comparable for the short hedge. But share price movement is often much larger than the index movement so one probably needs to play around with the size of the hedge to account for beta.
> 
> Is that website still active? I signed up and the latest newsletter was from Oct 2010?




Yeah their newsletter is still active. Did you just sign up? The newsletter is quite handy. PM me if you have any problems and I'll forward you the email.


----------



## skc (29 August 2011)

sammy84 said:


> Yeah their newsletter is still active. Did you just sign up? The newsletter is quite handy. PM me if you have any problems and I'll forward you the email.




Yes I just signed up. I see that it was just a sample of a recent newsletter dated Oct 2010. Should be a useful resource. Thanks.


----------



## Knobby22 (30 August 2011)

Fascinating skc, am watching with interest.


----------



## skc (30 August 2011)

skc said:


> *Trade #1*
> 
> Long 10,000 EHL @ $1.00. Dividend 3c, 100% franked. Gross div = 4.286c (4.286%)
> Short 376 WOR @ $26.65
> ...




Trade closed

Sold 10,00 EHL @ $0.975. P&L = -$250. 
Covered 376 WOR @ $26.80. P&L = -$56.4.
Dividend stripped = $300.
Franking credit = $128.6.
Commission paid = $32.

Net P&L = $90.5 (0.46% of capital used)


----------



## skc (30 August 2011)

*Trade #2*

Long 400 PPT @ $27.31. Dividend 90c, 100% franked. Gross div = $1.286 (4.7%)
Short 500 WBC @ $20.64.

Capital used = $21.5K


----------



## notting (30 August 2011)

skc said:


> *Trade #2*
> 
> Long 400 PPT @ $27.31. Dividend 90c, 100% franked. Gross div = $1.286 (4.7%)
> Short 500 WBC @ $20.64.
> ...




God, is that a pair.  I obviously have no idea! You know PPT is ex tomorrow!  I was thinking of a short, but not when the market is still relatively down.
My fear would be that it was just a dividend confirmation run up rally.  I think the off market buy back opportunity finishes very shortly too. Pardon the pun


----------



## skc (30 August 2011)

notting said:


> God, is that a pair.  I obviously have no idea! You know PPT is ex tomorrow!  I was thinking of a short, but not when the market is still relatively down.
> My fear would be that it was just a dividend confirmation run up rally.  I think the off market buy back opportunity finishes very shortly too. Pardon the pun




Thanks I overlooked that PPT not only ex-div tomorrow but also ex-buyback entitlement. The off-market buyback does have plenty of value and I don't have the time to calculate whether that's worth more or less than the franking credits. 

I will probably square off this trade at the close since both legs are in (tiny) profits.


----------



## notting (30 August 2011)

I was hoping you might!
It's just a bit of a risk. Hope you don't hate me for it later on!!


----------



## sammy84 (30 August 2011)

skc said:


> Trade closed
> 
> Sold 10,00 EHL @ $0.975. P&L = -$250.
> Covered 376 WOR @ $26.80. P&L = -$56.4.
> ...




Are you using IB to place these trades?

APN is interesting. Goes ex tomorrow and currently showing about 6% yield grossed up. The only worry is the downtrend it is currently in. Has barely had a div run up.


----------



## notting (30 August 2011)

If I had to today I'd choose IFL over PPT 
When it goes it goes and had a very strong result the other day. 
Goes ex 1st Sept. 7.19 fully franked. 
Just thinking with my hoofs


----------



## skc (30 August 2011)

notting said:


> I was hoping you might!
> It's just a bit of a risk. Hope you don't hate me for it later on!!




No thanks for the heads up. I wouldn't have taken it with the ex-entitlement tomorrow. It should have a run up to the close, however.



sammy84 said:


> Are you using IB to place these trades?
> 
> APN is interesting. Goes ex tomorrow and currently showing about 6% yield grossed up. The only worry is the downtrend it is currently in. Has barely had a div run up.




Yes using IB which is great now that you can short with them as well. 

APN is going ex 1 Sept, not tomorrow. Like most media stocks it seems to have found a short term bottom at least.


----------



## skc (30 August 2011)

notting said:


> If I had to today I'd choose IFL over PPT
> When it goes it goes and had a very strong result the other day.
> Goes ex 1st Sept. 7.19 fully franked.
> Just thinking with my hoofs




I already have a large position in IFL but yes definitely a great candidate.


----------



## skc (30 August 2011)

skc said:


> *Trade #2*
> 
> Long 400 PPT @ $27.31. Dividend 90c, 100% franked. Gross div = $1.286 (4.7%)
> Short 500 WBC @ $20.64.
> ...




*Trade #2 closed*

Sold 400 PPT @ $27.35. P&L = $16.
Covered 500 WBC @ $20.48. P&L = $80.
Dividend = $0
FC = $0
Commission = $32

Net P&L = $64 (0.3%)

Well that was a waste of time. Position shouldn't have been opened in the first place but will count it towards the total.


----------



## sammy84 (30 August 2011)

skc said:


> Yes using IB which is great now that you can short with them as well.
> 
> APN is going ex 1 Sept, not tomorrow. Like most media stocks it seems to have found a short term bottom at least.




I do like IB. I am still skeptical about the ability to claim franking credits though as strictly speaking you need a franking distribution statement. 

Would you consider APN as a candidate? I was going to simply strip it with no hedge but your method has me interested.


----------



## skc (30 August 2011)

sammy84 said:


> I do like IB. I am still skeptical about the ability to claim franking credits though as strictly speaking you need a franking distribution statement.
> 
> Would you consider APN as a candidate? I was going to simply strip it with no hedge but your method has me interested.




You can definitely claim franking credits with IB. IB now has a new facility under account management that details a report of dividends received for Australian residents. 




You can access that in your account management/report management/tax forms/income transaction taxable. It clearly shows you the dividends and franking credits. A very handy new feature.

APN is a candidate but I haven't decide what to use as hedge. Possible candidates are FXJ, TEN and NWS - I will probably just pick the one that's risen the most tomorrow. An index hedge should work with APN as well imo.


----------



## skc (31 August 2011)

*Trade #3*

Long 1587 IFL @ $6.30. Dividend 22c, 100% franked. Gross = 31.43c (4.99%)
Short 2532 PTm @ $3.95.

*Trade #4*

Long 4340 TTS @ $2.31. Dividend 11c, 100% franked. Gross = 15.71c (6.8%)
Short 1200 CWN @ $8.31.

*Trade #5*

Long 11,764 @ $0.85. Dividend 3.5c, 100% franked. Gross = 5.0c (5.88%)
Short 625 NWS @ $16.02

Capital used = $60k


----------



## skc (31 August 2011)

*Trade #6*

Long 3333 IAG @ $3. Dividend 7c, 100% franked. Gross = 10c (3.33%)
Short 1236 SUN @ $8.09.

Capital used = $80k

A few candidates passed up...
TRG - 20c dividend. Too illiquid.
FGL - 13.25c dividend. No franking.
SHL - 35c dividend. Only 28% franking


----------



## skc (31 August 2011)

skc said:


> *Trade #5*
> 
> Long 11,764 *APN* @ $0.85. Dividend 3.5c, 100% franked. Gross = 5.0c (5.88%)
> Short 625 NWS @ $16.02




Trade #5 long is APN.


----------



## skc (1 September 2011)

skc said:


> *Trade #3*
> 
> Long 1587 IFL @ $6.30. Dividend 22c, 100% franked. Gross = 31.43c (4.99%)
> Short 2532 PTm @ $3.95.
> ...




Trade #3 Closed
Sell IFL @ $6.22. Cover PTM @ $4.00

Trade #5 Closed
Sell APN @ $.845. Cover NWS @ $16.26


----------



## skc (1 September 2011)

skc said:


> *Trade #6*
> 
> Long 3333 IAG @ $3. Dividend 7c, 100% franked. Gross = 10c (3.33%)
> Short 1236 SUN @ $8.09.
> ...




Trade #6 closed

Sell IAG @ #3.03
Cover SUN @ $8.23


----------



## skc (1 September 2011)

skc said:


> *Trade #4*
> 
> Long 4340 TTS @ $2.31. Dividend 11c, 100% franked. Gross = 15.71c (6.8%)
> Short 1200 CWN @ $8.31.




Trade #4 closed

Sell TTS @ $2.20
Buy CWN @ $8.40


----------



## skc (1 September 2011)

P&L Summary

Trade #3 +$213.21. FC = $149.6
Trade #4 +$204.60. FC = $204.6
Trade #5 +176.5. FC = $176.5
Trade #6 +228.03. FC = $99.99

Total Franking credits collected so far $759.25.
Total P&L = $1005.


----------



## craft (1 September 2011)

skc said:


> P&L Summary
> 
> Trade #3 +$213.21. FC = $149.6
> Trade #4 +$204.60. FC = $204.6
> ...




SKC

Where did you buy your calculator? 

I wouldn’t mind buying one myself


----------



## skc (1 September 2011)

skc said:


> P&L Summary
> 
> Trade #3 +$213.21. FC = $149.6
> Trade #4 *+$64.9*. FC = $204.6
> ...




Oops.. I went cross-eyed on Excel and read the wrong column. 



craft said:


> SKC
> 
> Where did you buy your calculator?
> 
> I wouldn’t mind buying one myself




Lol. The magic calculator which turns all your trade into profits is available at Diagon Alley.


----------



## craft (1 September 2011)

skc said:


> Oops.. I went cross-eyed on Excel and read the wrong column.
> 
> 
> 
> Lol. The magic calculator which turns all your trade into profits is available at Diagon Alley.




You sure you are not at least still using a 'RM' calculator. 

Trade 3 as an example

Loss on Long $126.96  [1587*(6.22-6.30]
Loss on Short $126.60  [2532*(8.31-8.40)
Gain on Div $349.14  [1587*.22]
Total Gain $95.58 less commissions. (Franking Credits $149.63)


Or am I missing something?


----------



## craft (1 September 2011)

craft said:


> Or am I missing something?




I worked it out - Your gain includes the Franking credit. I initially read it as a raw trade prrofit plus franking credit.

Keep up the good work.

Cheers


----------



## skc (1 September 2011)

craft said:


> You sure you are not at least still using a 'RM' calculator.
> 
> Trade 3 as an example
> 
> ...




The P&L includes franking credits.
So $95.58 + $149.63 - $32 (commission) = $213.2

Total P&L = $1005, of which $759 is franking credits.

I did say margins are very thin.

This strategy will probably show better reward/risk on down days. At the moment all the hedges are simply costing me money.


----------



## skc (1 September 2011)

*Trade #7*

Long 500 MND @ $20.24. Dividend (ex Monday) 55c. 100% franked. Gross = 78.6c
Short 362 WOR @ $27.58.


----------



## skc (1 September 2011)

*Trade #8*

Long 2000 AHD @ $5.53. Dividend 27c. 100% franked. Gross = 38.6c (6.97%)
Short Index $3 x $4340.

Can't find a suitable hedge so an index will do for now.


----------



## craft (1 September 2011)

skc said:


> The P&L includes franking credits.
> So $95.58 + $149.63 - $32 (commission) = $213.2
> 
> Total P&L = $1005, of which $759 is franking credits.
> ...




Thanks for clarifying – as you will see above the penny dropped 1 minute before your post.

How much of the capital do you actually need to deploy to fund it? 
I’m guessing your using IB. Do you need to fully fund the short positions?  Do they net off transaction within T+3? Are they paying you any interest on the shorts?

The margin would be enhanced if the bulk of the capital backing the strategy stays in your own bank account attracting interest.

How many people do I know that haven’t utilised their $5000 franking exemption? Is the exemption applicable to kids?


----------



## skc (1 September 2011)

craft said:


> Thanks for clarifying – as you will see above the penny dropped 1 minute before your post.
> 
> How much of the capital do you actually need to deploy to fund it?
> I’m guessing your using IB. Do you need to fully fund the short positions?  Do they net off transaction within T+3? Are they paying you any interest on the shorts?
> ...




I have deliberately avoided talking about capital requirement for the time being - even though I've listed what maximum capital has been used.

The limitation of this strategy is the $5k franking credit rule. And if you have other investments, chances are you have even lower franking credit headroom available.

Therefore each trade is kept at $10k, because there are so many opportunities over the dividend season and many smallish positions are more than enough to reach the franking credit ceiling. It's not worth risking too much on any one of them, plus it's easier to manage entries and exits.

If capital is an issue, limit the strategy to 1 or 2 pairs each day, and use CFDs on the short hedge where you only need ~10-30% margin. Overall, I think one can easily deploy $40k ($30K in IB, $10K with CFD provider) and capture the $5k over 1 to 1.5 month. It's not a bad return.

WRT how much cash you need with IB - I think funding for short position is the same as for longs. Best check wtih yourself. I am not capital-constrained in my IB account at the moment so I am not that fuss about T+3 and all that.  

Short interest income will at the end of the day add very little to the P&L. Say you have open $10k short position every night for a month @ 4% interest = $32.

Do keep in mind though that much of the profits are franking credits which means they don't actually have value until you lodge your tax return. So from a time-value perspective it is more effective to do it in the 2nd reporting season. Esp if you have to borrow the initial capital.

You can however easily do it for yourself in August and your spouse in Feb. There are also misc opportunities through the year for your mistress/girlfriends etc.

As to kids and franking credits - best check with your accountant. I don't think the tax rules are as generous.

Lastly, there are large although rare tail risks with this strategy - the biggest of which is takeover risk on your shorts. Let's say 30% premium on the $10K position is a $3k loss. But the probability of occurance on that one day that you hold would be pretty small. Another being shock news on your position - but again that is mostly reduced by the fact that the company only just reported a few weeks ago.


----------



## skc (1 September 2011)

*Trade #9*

Long 559 RHC @ $17.93. Dividend 29.5c 100% franked. Gross 42.1c (2.4%).
Short 872 SHL @ $11.47.


----------



## craft (1 September 2011)

skc said:


> As to kids and franking credits - best check with your accountant. I don't think the tax rules are as generous.




I think you have inspired me.

Fund the account, stand ready to insure against the tail risk, and supervise the trades. This looks like a good way to get the kids learning, with a good risk weighted reward outcome and a short enough duration to keep their attention.

Have to do some research to see how the unearned income rules for minors mess with the outcome and if the 45day exemption applies to minors. 

Thanks


----------



## skc (1 September 2011)

craft said:


> I think you have inspired me.
> 
> Fund the account, stand ready to insure against the tail risk, and supervise the trades. This looks like a good way to get the kids learning, with a good risk weighted reward outcome and a short enough duration to keep their attention.
> 
> ...




Invoice for inspiration is in the mail.


----------



## suhm (1 September 2011)

do you do this full time? or is it more of a mechanical filter to initiate trades?


----------



## skc (1 September 2011)

suhm said:


> do you do this full time? or is it more of a mechanical filter to initiate trades?




This strategy is just on the side... like having fries with my burger (which is just straight up pairs trading). My fundamental investing is the coke, and I have a few other strategies as desert. Since I am watching these companies anyway it's not much additional effort for me.

It's not mechanical. Just look ahead at the dividend schedule, find a high yielding, good franking, liquid share, then find a weak looking comparable to hedge. Different people will use different company to hedge and get different results. Lots of discretion required.

The inherent edge in the strategy is that the market places no value on franking credits because of the 45 day rule (and foreign holders), yet it is available for retail holders subject to the $5k ceiling. All other share price movements are bonus if you like.

There is another market inefficiency that creates a small additional edge for this strategy - but I won't disclose it here


----------



## craft (1 September 2011)

I have done some quick research on applying this strategy for kids.

Basically it should work so long as there is no problem with designating it as business income. (I need to check this further)

Business income is not subject to the punitive income rates that relate to unearned income for minors.  So the full tax free threshold plus low income rebate should be available. Also need to be designated as a business so that the trading losses aren’t quarantined as CGT losses whist dividend Income is assessable.

There doesn’t seem to be any restrictions on minors for the $5000 exemption for the 45 day rule.

Any tax accountants out there who can confirm this?

All we need now is to have the kids paper trade this earnings season and then find some mug to give them a non-recourse unsecured loan and they will be set for March/April.  




skc said:


> Invoice for inspiration is in the mail.




They have promised to pay your invoice with their paper profits


One more question SKC. How much of the prices that you have been achieving are related to trade execution skill?  If you were just hitting the open auction do you expect the strategy would still have an edge? That’s one of the things I want to determine this dividend season on paper before the kids mug coffs up. I suspect I’ll try and help them pick the pairs for a while and that will probably be their biggest handicap.


----------



## skc (1 September 2011)

craft said:


> All we need now is to have the kids paper trade this earnings season and then find some mug to give them a non-recourse unsecured loan and they will be set for March/April.




That mug sounds like you... 

I am not sure this is a strategy for the kids. Although you can use your kid's name to do it if the ATO lets you.



craft said:


> One more question SKC. How much of the prices that you have been achieving are related to trade execution skill?  If you were just hitting the open auction do you expect the strategy would still have an edge? That’s one of the things I want to determine this dividend season on paper before the kids mug coffs up. I suspect I’ll try and help them pick the pairs for a while and that will probably be their biggest handicap.




Not sure I can quantify that. Take IFL for example I exited on open at $6.22, 2 ticks below the day's high and it closed $6.04. On the other hand the IAG/SUN pair would have been much more profitable had I held to the close. So a bit hit and miss really.

I would say the key skill is to pick the pair/hedge rather than to achieve the optimal price. With IAG I could have picked anything from QBE, AMP, Big 4 or SUN. But SUN was a share that ran hard the day before for no apparent reason, so it's more likely to pull back (or at least not run) today. 



craft said:


> They have promised to pay your invoice with their paper profits




That inspiration was on you. Don't make your kids pay for your inspiration!


----------



## gunt (1 September 2011)

This might be a beginner's question, but could you explain the short strategy a bit? Do you have any real expectation that the shorted stock will decrease, or is it simply a hedge in case the market takes a dive?

And is your exit based only on the desire to sell up after one day?

Cheers


----------



## skc (1 September 2011)

gunt said:


> This might be a beginner's question, but could you explain the short strategy a bit? Do you have any real expectation that the shorted stock will decrease, or is it simply a hedge in case the market takes a dive?
> 
> And is your exit based only on the desire to sell up after one day?
> 
> Cheers




The short is more a hedge than something to profit from, but since you are short you want to pick a stock that looks like a good short candidate, using whatever market reading skill you care to deploy. For this strategy to work, you just want the short not go up too much.

The strategy is based around being able to strip the dividned and franking credit with as little risk as possible. Reduction in holding time is a good way to reduce your risks.

There is no stopping you holding on to either the long or short trade after you've successfully stripped the dividend. But that would simply be a directional trade in itself and not a dividend stripping pairs trade. I do this regularly. But I keep separate records. E.g. Say I am long APN from yesterday and I like the company and think it's undervalued. So when APN opened this morning at 84.5 it has done its job for this strategy and I record the P&L as if I sold at 84.5c. But in actual fact I kept the position open. I then make a separate record entry under say a bottom-picking strategy with an entry at 84.5c. That way I get to analyse my apples and oranges separately.


----------



## skc (2 September 2011)

skc said:


> *Trade #9*
> 
> Long 559 RHC @ $17.93. Dividend 29.5c 100% franked. Gross 42.1c (2.4%).
> Short 872 SHL @ $11.47.




Trade closed

Sell RHC @ $17.69.
Cover SHL @ $11.39.

P&L = $139.3. Franking credits collected = $70.7.

P.S. RHC now up to $18...


----------



## sammy84 (2 September 2011)

Long SWM short NWS?

SWM grossed up yield currently 10.3%


----------



## skc (2 September 2011)

sammy84 said:


> Long SWM short NWS?
> 
> SWM grossed up yield currently 10.3%




SWM has run pretty hard but the yield is so big so the franking credits "should" hopefully offer enough protection.


----------



## skc (2 September 2011)

skc said:


> *Trade #8*
> 
> Long 2000 AHD @ $5.53. Dividend 27c. 100% franked. Gross = 38.6c (6.97%)
> Short Index $3 x $4340.
> ...




Trade closed

Sell 2000 AHD @ $5.30.
Cover Index $3 @ $4230. (Trailing a stop on this but this is where I'll mark the trade).

P&L $624.1. Franking credits = $231.43.

Total closed 8 trades. P&L total $1769.2. FC = $1061.4.


----------



## suhm (2 September 2011)

I think this would make a decent strategy with a sufficient capital base to get to the 5k limit and if it could be done in multiple entities. Probably would work better in a sideways market as I think the competitive advantage of this strategy would be having an entity paying a lower tax rate such a super especially super in its pension phase or people without active income.

It doesn't suit my style though, I perfer to have a larger payoff even though the probability of success is lower.

It's a fair wait to get your franking credits back during this dividend season though.


----------



## skc (2 September 2011)

sammy84 said:


> Long SWM short NWS?
> 
> SWM grossed up yield currently 10.3%




*Trade #10*

Long 2810 SWM @ $3.55. Div 26c, 100% franked. Gross = 37.1c (10.46%).
Short 629 NWS @ $15.91.


----------



## village idiot (2 September 2011)

liking the thread SKC, thanks.

just wondering how much dividend you 'pay' if you are short the cfd (in the same company you are long for the div), either through IB or thru a market maker like IG. Presumably they dont pay the grossed up amount when you are  long across an xd date, so they wouldnt make you pay the grossed up amount if short (or maybe they do?)

if not, having the long inside super with the hedging short using a cfd in a fully taxed environment sounds a plan....


----------



## skc (2 September 2011)

suhm said:


> I think this would make a decent strategy with a sufficient capital base to get to the 5k limit and if it could be done in multiple entities. Probably would work better in a sideways market as I think the competitive advantage of this strategy would be having an entity paying a lower tax rate such a super especially super in its pension phase or people without active income.




In 10 trades I am already up to ~$1,500 in franking credits. You can easily do this on 1 trade per day, which reduces your capital requirement to ~$25k.

The multiple entries thing is not a big deal as long as you stick to relatively liquid stock. With IB the broker is 8bps or $6 minimum, so you can do this with minimum position size of $7,500 and commission won't be a factor. So capital requirement can be further reduced, but will take more trades to get to $5K limit.

If you are sure we have a sideways market you might as well just long the ex-div share without hedge. The hedge is required because we are in a volatile market (has been for 3 years).

The tax status has no bearing on the competitive advantage of the strategy. $1 in franking credit is no different to $1 in other income. You pay tax on it at the same rate you would pay tax on any other income.



suhm said:


> It doesn't suit my style though, I perfer to have a larger payoff even though the probability of success is lower.




I look at things on risk adjusted payoff... and this is pretty good if you consider $5k+ on $25k capital in 2 months. Note that the $5k is only the franking credit limit. There may be profits in addition to the franking credits collected. So far the total profits are 1.7x franking credits collected.



suhm said:


> It's a fair wait to get your franking credits back during this dividend season though.




Yes that's why the Feb dividend season may be more suitable. There is also a wait on the dividend actually being paid but that's usually about a month as opposed to end of the tax year.


----------



## skc (2 September 2011)

village idiot said:


> liking the thread SKC, thanks.
> 
> just wondering how much dividend you 'pay' if you are short the cfd (in the same company you are long for the div), either through IB or thru a market maker like IG. Presumably they dont pay the grossed up amount when you are  long across an xd date, so they wouldnt make you pay the grossed up amount if short (or maybe they do?)
> 
> if not, having the long inside super with the hedging short using a cfd in a fully taxed environment sounds a plan....




I've never been charged franking credits when I short an ex-div CFD. But I do seem to remember the prospectus saying that they can charge you if they want/have to. Best to confirm for yourself. Not sure about IB as I've never shorted during ex-div with them.

I don't know how franking credit limit / 45day rule works in the super environment so again check with your accountant. One potential issue is that your long positions will in most cases incur a capital loss on the trade. You want to make sure you have enough capital gains to offset the loss within super so you get the benefit of the loss in a timely manner.


----------



## village idiot (2 September 2011)

yes the 45 day rule would be a problem in super, as well as you cant be seen to do too much short term trading

but my main point was that you could use the cfd of the same share as the hedge, which would eliminate the tail risk (and the pairs correlation risk?). ? could be with another broker if you wanted to disguise what you are doing


----------



## skc (2 September 2011)

village idiot said:


> yes the 45 day rule would be a problem in super, as well as you cant be seen to do too much short term trading
> 
> but my main point was that you could use the cfd of the same share as the hedge, which would eliminate the tail risk (and the pairs correlation risk?). ? could be with another broker if you wanted to disguise what you are doing




This is in the PDS of MFGlobal. Not sure what "in some circumstances" mean, but probably means if you abuse it enough you will get caught out...



> If a dividend or distribution is paid in respect of an underlying instrument or security while you hold a short position in a CFD in respect of the underlying instrument or security you must pay cash equal to the value of the dividend or distribution paid on such underlying instrument or security (if any) (plus, in some circumstances, the value of any franking credits applicable to that dividend or distribution)




But if it works, just do 1 trade a year and be done with it!


----------



## skc (5 September 2011)

skc said:


> *Trade #10*
> 
> Long 2810 SWM @ $3.55. Div 26c, 100% franked. Gross = 37.1c (10.46%).
> Short 629 NWS @ $15.91.




Trade closed

Sell SWM @ $3.23.
Cover NWS @ $15.62.

P&L = $295.8. FC = $313.1



skc said:


> *Trade #7*
> 
> Long 500 MND @ $20.24. Dividend (ex Monday) 55c. 100% franked. Gross = 78.6c
> Short 362 WOR @ $27.58.




Trade closed

Sell MND @ $19.1.
Cover WOR @ $26.3

P&L = $272.2. FC collected = $117.9.

TOTAL 10 trades P&L = $2337.2. FC collected = $1492.3.


----------



## craft (5 September 2011)

I have been doing some more thinking/research into utilising your pair’s dividend strategy.

Firstly the idea of getting the kids involved is legit, not just a tax dodge. The low risk of the strategy along with utilising the 45day exemption and the tax free threshold provides a potential beneficial back drop.   

In thinking through the practicalities, I decided that the best hedge would be one index hedge of some sort to offset the market risk for the whole period.  Doesn’t help with sector rotation but it doesn’t have the tail risk of a short being bought out either.    The main consideration was the difficulty in picking the hedge.  Reviewing a list of dividends due and a scanning the charts to find the ones heading NE is probably enough for the kids to deal with at this stage.

I think I have hit a major hurdle though.  Because the actual trades will most likely be loss making there is no expectations of making a profit from trading and therefore it would be hard to argue that a trading business was being run.  The dividend and franking credits would be deemed income from investing and assessable whilst the trading losses would be quarantined in the CGT regime. (also creating lots of paper work.)  Additionally, because the income is not from business the kids would be hit with unearned income penalty tax. Oh well – onto the next idea.

Your strategy seems to have tax minimisation potential for some circumstances, Offsetting capital gains or for pre-existing trading businesses where the  $5000 45 day exemption  has not been exhausted.

Whilst I'm not preceding any further with this I am still interested in being a voyeur on this thread. One small request – could you tweak the  updates to report separate Long P&L, Short P&L,  Dividends Received & Franking credits

Thanks


----------



## skc (5 September 2011)

craft said:


> I have been doing some more thinking/research into utilising your pair’s dividend strategy.
> 
> Firstly the idea of getting the kids involved is legit, not just a tax dodge. The low risk of the strategy along with utilising the 45day exemption and the tax free threshold provides a potential beneficial back drop.
> 
> ...




I am surprised it took you that long to come up with this issue! There are plenty of easier ways to educate your kids about shares / trading.

The strategy is not about tax minimisation. It's about profiting. And the profit consist of dividends and franking credits offset against capital gains/losses. The 45-day rule and $5k threshold puts a limit on this strategy, because franking credit is a large part of the edge... but tax minimisation isn't the goal, nor is it achieved (I am paying more tax as a result of the profits!).



craft said:


> Whilst I'm not preceding any further with this I am still interested in being a voyeur on this thread. One small request – could you tweak the  updates to report separate Long P&L, Short P&L,  Dividends Received & Franking credits
> 
> Thanks







Should be pretty self explanatory...

As I said the hedge works much better when the market has a down day and the last 4 trades have demonstrated that.


----------



## sammy84 (5 September 2011)

I personally like the strategy (if that isn't obvious so far). I have always tried during the div period to strip the div and franking credit, however, have never used a hedge. By using a hedge I am a lot more comfortable and there is an added opportunity to try and profit on the second leg (i.e the hedge). So thanks SKC.

Doesn't seem to be a lot on offer today though. 

Thinking HIL and an index hedge.


----------



## skc (5 September 2011)

sammy84 said:


> I personally like the strategy (if that isn't obvious so far). I have always tried during the div period to strip the div and franking credit, however, have never used a hedge. By using a hedge I am a lot more comfortable and there is an added opportunity to try and profit on the second leg (i.e the hedge). So thanks SKC.
> 
> Doesn't seem to be a lot on offer today though.
> 
> Thinking HIL and an index hedge.




Thanks Sammy glad you liked it. Keep in mind that if you go over the $5k franking credit limit you *lose all *franking credits that you didn't hold for 45 days. 

I am actually not going to trade this strategy anymore for this dividend season. With other franking credits I've got I am already half way there, and we are only 2 months into the financial year... I might put up some mock trades however.

I think the chart of HIL is not too bad. And 5% gross is pretty decent. I havent' traded HIL for a while but I used to pair it up with other companies related to the buildings industry: BLD, CSR, HST, GWA, ALS, FBU etc...


----------



## sammy84 (5 September 2011)

skc said:


> Thanks Sammy glad you liked it. Keep in mind that if you go over the $5k franking credit limit you *lose all *franking credits that you didn't hold for 45 days.
> 
> I am actually not going to trade this strategy anymore for this dividend season. With other franking credits I've got I am already half way there, and we are only 2 months into the financial year... I might put up some mock trades however.
> 
> I think the chart of HIL is not too bad. And 5% gross is pretty decent. I havent' traded HIL for a while but I used to pair it up with other companies related to the buildings industry: BLD, CSR, HST, GWA, ALS, FBU etc...




It is a good strategy at times like these when it is best for me to stay clear of the markets with my other strategies i.e swing trading. 

Typically I'll try and find someone else's name to trade under for the March period. Agreed though must be careful not to get too close to $5k.

Thanks for suggesting hedges.


----------



## skc (5 September 2011)

sammy84 said:


> It is a good strategy at times like these when it is best for me to stay clear of the markets with my other strategies i.e swing trading.
> 
> Typically I'll try and find someone else's name to trade under for the March period. Agreed though must be careful not to get too close to $5k.
> 
> Thanks for suggesting hedges.




I am sure you understand they were only suggestions for you to look at, not suggestions for you to use.


----------



## craft (5 September 2011)

skc said:


> I am surprised it took you that long to come up with this issue!.




Can’t help it – I’m just slow.



> There are plenty of easier ways to educate your kids about shares / trading.



 Low risk, time frame within their attention span and hands on all seemed rather compelling to me.



> The strategy is not about tax minimisation. It's about profiting. And the profit consist of dividends and franking credits offset against capital gains/losses. The 45-day rule and $5k threshold puts a limit on this strategy, because franking credit is a large part of the edge... but tax minimisation isn't the goal, nor is it achieved (I am paying more tax as a result of the profits!).




Utilising the 45 day exemption, tax free threshold and avoiding the penalty tax is a lot of edge – referring to it as tax minimisation though wasn’t probably the best choice of words.  If a business activity designation could be obtained and I'm not entirely sure that it couldn't than all issue with minors using it disappear. I wouldn't proceed without a private ruling first though. 

View attachment 44364


The table is exactly the breakup I was envisaging. - Thanks.

I hope I haven't unintentionally offended you as I have mused over how I might utilise your idea.


----------



## sammy84 (5 September 2011)

skc said:


> I am sure you understand they were only suggestions for you to look at, not suggestions for you to use.




Completely understand. Was more for discussion purposes.


----------



## PinguPingu (5 September 2011)

I also like this strategy, however, I don't have the ability to hedge at the moment because it seems like a lot of brokers have age/capital limitations with shorting. So if I do attempt this strategy I'm basically relying on profit from the share price drop to dividend ratio and franking credits for minuscule profit.


----------



## skc (5 September 2011)

craft said:


> Can’t help it – I’m just slow.
> 
> Low risk, time frame within their attention span and hands on all seemed rather compelling to me.
> 
> ...




No offence what so ever. I am simply responding with my own thoughts. You seem like a rational enough guy so I didn't think I need to pad my post with soft phrases like "Don't take it the wrong way" etc etc.  

BTW I didn't create the table just for you. It was already done so just needed to post it. Clearly to understand where the edge is one needs to breakdown where the profits and losses are coming from...


----------



## skc (6 September 2011)

*Trade #11* (Mock trade only)

Buy 50,000 BSA @ $0.235. Dividend 2c, 100% yield, gross = 12.2%
Short Index 4 @ $4100


----------



## sammy84 (7 September 2011)

FXL is another one to add to the list today. 3.92% yield grossed up. Would probably need an index hedge again


----------



## skc (7 September 2011)

sammy84 said:


> FXL is another one to add to the list today. 3.92% yield grossed up. Would probably need an index hedge again




Comparables for FXL are TSM, CCV and TGA. None of them terribly liquid for hedging however.


----------



## sammy84 (7 September 2011)

skc said:


> Comparables for FXL are TSM, CCV and TGA. None of them terribly liquid for hedging however.




Had a look at TSM and CCV last night. Not sure if I could even short them.

I wonder how effective an index hedge is on a day like today. Typically a bullish day like today will have some follow through tomorrow (at least on the open). An index hedge would struggle to match a stock hedge with a poor relative strength for the day.


----------



## skc (7 September 2011)

sammy84 said:


> Had a look at TSM and CCV last night. Not sure if I could even short them.
> 
> I wonder how effective an index hedge is on a day like today. Typically a bullish day like today will have some follow through tomorrow (at least on the open). An index hedge would struggle to match a stock hedge with a poor relative strength for the day.




FXL probably has decent correlation with some of the retail stocks - MYR is having a good rise today and looks to have stiff resistance at $2.25. 

The other choice is not to hedge, however with the volatility of the market at the moment follow through is not guaranteed. Don't forget the German courts are delivering a ruling on the bail out tonight... It could get ugly although the chances are small.


----------



## Pairs Trader (7 September 2011)

Nice strategy skc, I'll be following this thread with interest.


----------



## skc (7 September 2011)

Pairs Trader said:


> Nice strategy skc, I'll be following this thread with interest.




Thanks PT.

What I haven't mentioned here is that the strategy can be used in combination with the normal pairs trading strategy. 

https://www.aussiestockforums.com/forums/showthread.php?t=14508&p=653290#post653290

The Pairs Trade Finder is also useful for suggesting a hedge. Pick a stock that has diveraged from the usual correlation and that can potentially increase the return. One might also chooses to hold longer periods than selling on the ex-date to capture more of the mean reversion tendency of the pair.

Trade #1 EHL/WOR is an example of such. P&L = $750 if held until exit signal.


----------



## skc (8 September 2011)

skc said:


> *Trade #11* (Mock trade only)
> 
> Buy 50,000 BSA @ $0.235. Dividend 2c, 100% yield, gross = 12.2%
> Short Index 4 @ $4100




Position closed

Sell 50,000 BSA @ $0.215.
Cover Index 4 @ $4210.

Realised P&L = -$29.4. FC collected = $428.6

Since this is only a mock position it makes sense to mark it off here. For a real position I would hold onto both legs for a bit longer and wait for some liquidity to return to BSA. 

This was a particularly bad entry... being 1 day earlier than need be. A more timely entry (say at 23c) would see a positive P&L ~$450.


----------



## sammy84 (9 September 2011)

I'm personally in the following today-

GWA (5.5%)     Short CSR
TOL (4.09%)     Possible shorts- QRN or AIO
FLT (3.5%)       Possible short- QAN

Haven't placed the TOL and FLT short hedges yet. Will probably wait until the afternoon until the market settles or shows some signs or weakness.


----------



## skc (9 September 2011)

sammy84 said:


> I'm personally in the following today-
> 
> GWA (5.5%)     Short CSR
> TOL (4.09%)     Possible shorts- QRN or AIO
> ...




All good solid choices, Sammy. FLT works also with AIX and MAP historically while TOL has decent performance as a pair with LEI and QAN.

Plenty of ex-div on Monday. AHE and DVN might aslo worth a play.

Sammy, why don't you share here the prices of your entry and exit and I will list them on my spreadsheet (since I am not trading these for real for this season anymore). I will just assume you did $10k positions.


----------



## sammy84 (9 September 2011)

skc said:


> All good solid choices, Sammy. FLT works also with AIX and MAP historically while TOL has decent performance as a pair with LEI and QAN.
> 
> Plenty of ex-div on Monday. AHE and DVN might aslo worth a play.
> 
> Sammy, why don't you share here the prices of your entry and exit and I will list them on my spreadsheet (since I am not trading these for real for this season anymore). I will just assume you did $10k positions.




Buy 4580 GWA @ 2.18
Sell 4270 CSR @ 2.33

Buy 514 FLT @ 19.526 (Had 2 entries so avg price)
Sell 6265 QAN @ 1.59

Buy 2115 TOL @ 4.72
Sell 3010 QRN @ 3.32

All were actual entries and yes I use $10k. I'm pretty disappointed with entries today. Read the market completely wrong. Will be hard to make any decent profit with how far CSR, FLT and TOL already drifted.


----------



## skc (9 September 2011)

sammy84 said:


> Buy 4580 GWA @ 2.18
> Sell 4270 CSR @ 2.33
> 
> Buy 514 FLT @ 19.526 (Had 2 entries so avg price)
> ...




Thanks Sammy. Great stuff. Le's see what Monday brings...


----------



## skc (12 September 2011)

skc said:


> Thanks Sammy. Great stuff. Le's see what Monday brings...




How you go, Sammy?

Definitely going to test your exit skills today.


----------



## sammy84 (12 September 2011)

sammy84 said:


> Buy 4580 GWA @ 2.18
> Sell 4270 CSR @ 2.33
> 
> Buy 514 FLT @ 19.526 (Had 2 entries so avg price)
> ...




Positions closed.

Sell GWA @ 2.03
Buy CSR @ 2.29

Net P/L= $39. F/C collected $166.


Sell FLT @18.50. 
Buy QAN @ 1.535

Net P/L= $169. F/C collected $105.73


Sell TOL @ 4.47 
Buy QRN @ 3.25 

Net P/L= $89. F/C collected $89.84


P&L for the day is $298, or $208 after commissions.

Would have been a much better day had I timed my initial entries better. Ideally I would like for my P&L to be greater that F/C collected to minimise the opportunity cost.
 Fairly happy with my fills today. TOL has run a bit since I've exited, but with the market being so volatile at the moment the less time in it the better!

Doesn't seem to be any suitable plays until later in the week now. You have any SKC?


----------



## skc (12 September 2011)

sammy84 said:


> Positions closed.
> 
> Sell GWA @ 2.03
> Buy CSR @ 2.29
> ...




Thanks Sammy. I think a day like today shows the benefit of this hedged strategy. If you just went dividend stripping you would have been burnt quite badly.

Not much in the coming week... the only potential ones are BRG, MIN and RCR, but BRG and RCR can both be quite thin.


----------



## sammy84 (14 September 2011)

New position

Buy MIN 900@ 11.07    3.4% yield
Sell ASL 3080@ 3.14


----------



## skc (14 September 2011)

sammy84 said:


> New position
> 
> Buy MIN 900@ 11.07    3.4% yield
> Sell ASL 3080@ 3.14




Noted. Good luck. Going to be a wild night...


----------



## sammy84 (16 September 2011)

sammy84 said:


> New position
> 
> Buy MIN 900@ 11.07    3.4% yield
> Sell ASL 3080@ 3.14




Position closed

Sell MIN @ 11.17
Buy ASL @ 3.20

P/L- $222. Franking credits $104.


----------



## skc (16 September 2011)

sammy84 said:


> Position closed
> 
> Sell MIN @ 11.17
> Buy ASL @ 3.20
> ...




Very strong day today for MIN and mining services in general. Your hedge pick of ASL was actually pretty good as it didn't run much away from you. Again, a correct read of the market's strength today may have yielded better outcome.


----------



## sammy84 (17 September 2011)

skc said:


> Very strong day today for MIN and mining services in general. Your hedge pick of ASL was actually pretty good as it didn't run much away from you. Again, a correct read of the market's strength today may have yielded better outcome.




Agreed. However at the time the strategy seemed correct. I wanted to exit the short at the open given the market strength and I wasn't prepared to leave an unhedged long in this market either. Also, I typically only get between 10-10.30am, 1-2pm, and 3.45-4pm to place enter/exit positions.


----------



## SilverRanger (17 September 2011)

Hi skc,

Great job in coming up with this market neutral dividend stripping strategy!! 



skc said:


> The tax status has no bearing on the competitive advantage of the strategy. $1 in franking credit is no different to $1 in other income. You pay tax on it at the same rate you would pay tax on any other income.



Just a quick comment on the above point tho, $1 in income and $1 in FC is not exactly the same thing, as FC only serves as a deduction. Just as an example to illustrate:

If you earn $10000 in other income, and given a choice of $1000 as trading profit or $1000 in franking credit you will definitely go for the trading profit. In fact, franking credit is only TR / (1 - TR)% (TR is your marginal tax rate) as good as your actual profit


----------



## skc (17 September 2011)

SilverRanger said:


> Hi skc,
> 
> Great job in coming up with this market neutral dividend stripping strategy!!
> 
> ...




Not sure that is true. FC is added to your income as taxable income, and the full amount is deducted from your tax liability.

So 10k income + $1k FC = $11k total taxable income, @ 30% tax rate your tax liability is $3.3k, offset by FC of $1k, so you actually pay $2.3k tax. Your net cash is $10k - $2.3k = $7.7k which is exactly the same as if you had other income.

Same calculation with any other tax rate.

This from Wikipedia (obviously not the authority in tax)...



> The easiest way for an investor to value a franked dividend is to think of the franking credit as part of the income they receive. The investor doesn't get it in cash, only as a kind of IOU from the tax office, but nonetheless it and the cash portion make up pre-tax income. Thus a franked dividend of $0.70 plus $0.30 credit is exactly equivalent to an unfranked dividend of $1.00, or to bank interest of $1.00, or any other ordinary income of that amount. (It's exactly equivalent because franking is fully refundable, as described above.)


----------



## SilverRanger (17 September 2011)

skc said:


> Not sure that is true. FC is added to your income as taxable income, and the full amount is deducted from your tax liability.
> 
> So 10k income + $1k FC = $11k total taxable income, @ 30% tax rate your tax liability is $3.3k, offset by FC of $1k, so you actually pay $2.3k tax. Your net cash is $10k - $2.3k = $7.7k which is exactly the same as if you had other income.
> 
> ...




Yes, you are right (obviously doing this stuff only once a year doesn't help in keeping it in my head!)


----------



## skc (18 September 2011)

SilverRanger said:


> Yes, you are right (obviously doing this stuff only once a year doesn't help in keeping it in my head!)




How did people settle such debates beofre wikipedia? You did have me worried for a brief second though! 

May be you are entitled to some amendments from the tax office!


----------



## sammy84 (22 September 2011)

New positions

Buy RHG 18690 @ .535  (26% grossed up)
Sell CBA 233 @42.90

Buy SXL 9800@1.025 (4.1% grossed up)
Sell NWs 620@16.07


----------



## nulla nulla (22 September 2011)

sammy84 said:


> New positions
> 
> Buy RHG 18690 @ .535  (26% grossed up)
> Sell CBA 233 @42.90
> ...




You angling for the RHG $0.10 div Sammy? Fairly good % return on the purchase price as long as it bounces back after the ex-div sell down (which in my opinion it should). As always DYOR.


----------



## skc (22 September 2011)

sammy84 said:


> New positions
> 
> Buy RHG 18690 @ .535  (26% grossed up)
> Sell CBA 233 @42.90
> ...






nulla nulla said:


> You angling for the RHG $0.10 div Sammy? Fairly good % return on the purchase price as long as it bounces back after the ex-div sell down (which in my opinion it should). As always DYOR.




Logged the trades for you. Probably wouldn't have done RHG myself. It looks like a special div and share price behaviour after special div can be, well, special. When the FC is so fat I think the share price has priced in some of that already.

Tomorrow will be interesting given how far we moved down in the last few days. If we do get a rebound day, the ex-div shares could be disadvantaged... although probably another bloodbath in Europe tonight.


----------



## nulla nulla (22 September 2011)

skc said:


> Logged the trades for you. Probably wouldn't have done RHG myself. It looks like a special div and share price behaviour after special div can be, well, special. When the FC is so fat I think the share price has priced in some of that already.
> 
> Tomorrow will be interesting given how far we moved down in the last few days. If we do get a rebound day, the ex-div shares could be disadvantaged... although probably another bloodbath in Europe tonight.




Yeah, not easy to call at the moment. Trying to find the balance between oversold and likely to be sold down even more in the days ahead. I sat in the queue all day today for a partial fill on IOF. They trade ex-div on monday and it is less than a cent, but the low price ($0.595) should have capacity to rebound even after it goes ex-div. Might have to wait it out a bit though.


----------



## sammy84 (22 September 2011)

skc said:


> Logged the trades for you. Probably wouldn't have done RHG myself. It looks like a special div and share price behaviour after special div can be, well, special. When the FC is so fat I think the share price has priced in some of that already.
> 
> Tomorrow will be interesting given how far we moved down in the last few days. If we do get a rebound day, the ex-div shares could be disadvantaged... although probably another bloodbath in Europe tonight.




Agree re the risk with RHG. Based the trade on SIP which had similar sort of yield. From that example it seemed a lot of buyers waited on the sidelines until in went ex to get in. Won't be selling on the open that's for sure though.


----------



## skc (23 September 2011)

sammy84 said:


> New positions
> 
> Buy RHG 18690 @ .535  (26% grossed up)
> Sell CBA 233 @42.90
> ...




Pretty messy stuff today. How did u go?


----------



## sammy84 (24 September 2011)

sammy84 said:


> New positions
> 
> Buy RHG 18690 @ .535  (26% grossed up)
> Sell CBA 233 @42.90
> ...




Positions closed,

Sell RHG @ .41
Buy CBA @ 43.01

P/L $276. FC collected $801

Sell SXL @ .985
Buy NWS @ 16.28

P/L ($130). FC collected $126.


----------



## sammy84 (24 September 2011)

skc said:


> Pretty messy stuff today. How did u go?




Just posted results. Was a crazy day. My hedges lost $180 collectively. Could've been worse though given how the day spanned. I'm glad to have come out overall ahead for the day, unfortunately the only profit was in franking credits and I lost $780 in actual cash for the day.


----------



## SilverRanger (21 October 2011)

Just happened to pick up DJS/HVN today at market close, and HVN is going into ex-dividend next Friday, if the trade lasts til then it may be another example.

Long HVN @ 2.21
Short DJS @ 3.16

The next worthwhile target is probably BOQ next month.


----------



## skc (26 October 2011)

SilverRanger said:


> Just happened to pick up DJS/HVN today at market close, and HVN is going into ex-dividend next Friday, if the trade lasts til then it may be another example.
> 
> Long HVN @ 2.21
> Short DJS @ 3.16
> ...




Sry missed this post. I won't log the trade as it diverts slightly from this strategy (to be in a stock for as short a time as possible).

I've opened this same trade just as a normal pairs trade today. Long HVN $2.24, short DJS $3.30. Already underwater


----------



## notting (22 January 2012)

I haven't quite got what the stratergy is here.
But Long BEN
Short BOQ looks OK to me?


----------



## Gringotts Bank (10 February 2012)

Anyone know if IG Markets has the full range of American ETFs to trade?  And the data fees for US stock access?


----------



## skc (10 February 2012)

notting said:


> I haven't quite got what the stratergy is here.
> But Long BEN
> Short BOQ looks OK to me?




Sorry missed this question last month. The point is to capture the market inefficiency associated with dividend drop-off, and using franking credit as a cushion.

BEN is going ex-div at end of Feb and so it would be a candidate. But this strategy doesn't put on the trade until very close to the ex-date.



Gringotts Bank said:


> Anyone know if IG Markets has the full range of American ETFs to trade?  And the data fees for US stock access?




Wrong thread or are you asking me? IG doesn't pay me for doing FAQ for them... so get off your backside call them yourself


----------



## PinguPingu (11 February 2013)

Bumping this as its dividend season again and looking to try this, and so far my first paper pair not going smashingly...

Long Tabcorp: TAH @3.300 its now already $3.23
Index short hedge @ 4975 is going ok 

When did you (skc, sammy, etc) find was generally the best time to open the positions? Guess I wasn't expecting such a sell off before TABs dividend.


----------



## skc (11 February 2013)

PinguPingu said:


> Bumping this as its dividend season again and looking to try this, and so far my first paper pair not going smashingly...
> 
> Long Tabcorp: TAH @3.300 its now already $3.23
> Index short hedge @ 4975 is going ok
> ...




That's a trillion dollar question, isn't it? You open the trade as close to the ex-date as possible (which you did I am guessing) to minimise the risk, and unless you are good with day trading / order flow etc, you are going to get your timing wrong sometimes. The benefit is that the franking credit "cushions" it (hopefully) and the strategy is profitable over many trades.

BTW I don't do this strategy any more. It's time consuming with limited upside (only up to $5k in franking credits max). And I have a share portfolio these days that earns dividend so the upside is even less.


----------



## PinguPingu (11 February 2013)

skc said:


> BTW I don't do this strategy any more. It's time consuming with limited upside (only up to $5k in franking credits max). And I have a share portfolio these days that earns dividend so the upside is even less.




Why did I have a suspicion this would be part of your answer  Yeah I can definitely see how this would be tediously time consuming, given constant entry/exit watching. Still, given all the time I have during uni holidays and the fact i have just enough to strip some now and again (capital 20k) I'll see how it plays out.


----------

