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Buy before XD

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kerosam

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Hi fellows,

just thought of a possible strategy, if that's what its called .:p:

LONG the share 1 week before it goes recorded. Once recorded, SHORT it for, maybe a 5-day low or lastest support level. after all, the SP usually drops after XD record date (except for OXR, i think. i heard it went up after XD). maybe someone had this idea as well.

any thoughts that whether it might or might not work?;)

thanks in advance.
 
Re: - Buy before XD

Interesting trading technique.

Do you mean short before the XD? You cannot collect the Div and them make money off the short because the price will instantly drop after the xd. I think that's what you mean.
 
Re: - Buy before XD

hi mime,

thanks for the reply.

how about LONG before XD

OR

SHORT on the day XD? i guess the shares i should be mid cap to blue chips.
 
Re: - Buy before XD

From my point of view,it is impossible to make consistent return in this way.
 
Re: - Buy before XD

ta2693,

please elaborate more. Within my very basic knowledge of trading, I thought that companies that are due to XD will rise and of course on the after the day of record, it falls. the only example i can give to support this is with CSM (which I hold a small amount). Before record date, it went up & close at $3.49 and the day itself, fell to $3.35. I thought that drop is normal (not too drastic fall of course) and common. Maybe I miss out something?:eek:

macca,

thanks for the link. very much appreciated. Do i have to be a member or register with the site? cos it appears that i need authorisation which more or less means I need a username and password.

:)
 
Re: - Buy before XD

if you short a stock before the dividend pay-out and you are holding that stock on that day, you will have to pay the dividend to the broker.:cool:
 
Re: - Buy before XD

aaahhhhhhhh...... thanks yonnie. i wasn't aware of that. phew.

i knew it! i can't be that smart to think of this without any catch. :eek:
 
Re: - Buy before XD

There is a 62% chance that a stock will rise the 30-days prior its ex-div date if the dividend yield x LVR is greater than 8%. It is a solid strategy and I highly recommend www.exdividendwatchlist.com.au as a source of further information. Whilst Don uses a discretionary approach, I applied a systematic approach to the phenomena and was more than pleased with the results.

As said elsewhere, shorting the stock into ex-div is probably not viable. Obviously you pay the dividend itself to the buyer, but on many occasions the franking works in favour of the buyer, not the seller. I have researched taking the franking credit via CFD's but after comm's and effort, its really not worth it.

Nick


This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.
 
Re: - Buy before XD

62% chance is not statistically significant, considering we are in bull market.

Have you test your method in Bear market and other markets other than ASX?
 
Re: - Buy before XD

Nick Radge said:
There is a 62% chance that a stock will rise the 30-days prior its ex-div date if the dividend yield x LVR is greater than 8%. It is a solid strategy and I highly recommend www.exdividendwatchlist.com.au as a source of further information. Whilst Don uses a discretionary approach, I applied a systematic approach to the phenomena and was more than pleased with the results.

As said elsewhere, shorting the stock into ex-div is probably not viable. Obviously you pay the dividend itself to the buyer, but on many occasions the franking works in favour of the buyer, not the seller. I have researched taking the franking credit via CFD's but after comm's and effort, its really not worth it.

Nick


This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.
Click to expand...


Cheers for that post Nick I never thought about looking at buying socks early into going Ex for a capital gain.
 
Re: - Buy before XD

just found out from the recent smartinvestor page 12 ('Mad dash for cash') that there is a fund (Aurora Funds Management) doing something similar.

;)
 
Re: - Buy before XD

Nick Radge said:
There is a 62% chance that a stock will rise the 30-days prior its ex-div date if the dividend yield x LVR is greater than 8%. It is a solid strategy and I highly recommend www.exdividendwatchlist.com.au as a source of further information. Whilst Don uses a discretionary approach, I applied a systematic approach to the phenomena and was more than pleased with the results.

As said elsewhere, shorting the stock into ex-div is probably not viable. Obviously you pay the dividend itself to the buyer, but on many occasions the franking works in favour of the buyer, not the seller. I have researched taking the franking credit via CFD's but after comm's and effort, its really not worth it.

Nick
Click to expand...


Dear Nick,

I'm a bit confused by the div yield x LVR being greater than 8%. Can you explain further with a possible example from the past.

Garpal
 
Re: - Buy before XD

Garpal,

Step 1: gross the dividend up by the franking amount
Step 2: divide Step-1 by the share price
Step 3: divide Step-2 by by the LVR amount (the amount you pay)

Example:

WES pays a div on 21 August.
Div amount = 150
Franking = 100
LVR = 75% (therefore you pay 25%)


Step 1: 1.50 x 1.42 = 2.13
Step 2: 2.13 / 40.70 = 0.0523341
Step 3: 0.0523341 / .25 = 0.209

Therefore, WES has a reading of > 8% and because we're within 30 days of its ex-div date it becomes a setup candidate for the system I devised. It does not warrant an entry until the system signals it - its now on the watchlist pending that entry trigger.


Below is my system test equity curves from 1999 through 2004 based on $20,000 per trade. RAW is taking all signals, Filtered is only taking those above 8%. It includes comms but not funding. The end equity after funding is $179,631 and $170,386 respectively.

dividendsuo6.png





This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.
 
Re: - Buy before XD

Nick, with the above formulae,

step 1: 1.50 x 1.42= 2.13.... the value 1.42 refers to?

thanks in advance. :)
 
Re: - Buy before XD

Nick Radge said:
Garpal,

Step 1: gross the dividend up by the franking amount
Step 2: divide Step-1 by the share price
Step 3: divide Step-2 by by the LVR amount (the amount you pay)

Example:

WES pays a div on 21 August.
Div amount = 150
Franking = 100
LVR = 75% (therefore you pay 25%)


Step 1: 1.50 x 1.42 = 2.13
Step 2: 2.13 / 40.70 = 0.0523341
Step 3: 0.0523341 / .25 = 0.209

Therefore, WES has a reading of > 8% and because we're within 30 days of its ex-div date it becomes a setup candidate for the system I devised. It does not warrant an entry until the system signals it - its now on the watchlist pending that entry trigger.
Click to expand...

Thanks for that Nick, it makes sense.

Garpal
 
Re: - Buy before XD

kerosam,
The 1.42 represents the franking grossed up assuming the highest tax bracket.

Nick
 
Re: - Buy before XD

Nick Radge said:
The 1.42 represents the franking grossed up assuming the highest tax bracket.
Click to expand...
The personal tax rate is not relevant for grossing up dividends, only the company rate.

To gross up 100% franked dividends you divide by 0.7, which is the same as multiplying by 1.42 (actually closer to 1.43).

Cheers,
GP
 

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