Shorting stocks as they go ex-dividend

[dano065]

Hi,
Even though I have been looking at this site for a while, this is only my 2nd thread. I hope this doesn't sound like 2 silly questions. I have been looking at a few stocks latley around the dividend end date. They seem to have all dropped as the the stock goes dividend- I think I understand why...but, is it a possible strategy to short a stock while it goes ex-dividend, to take advantage as the stock goes down from paying the share holders, is there any other major risk involved?

Also, is there a time limit on how long you need to hold stocks to take advandage of company dividend pay outs, do you have to hold the stock a certain amount of time to be intitled to dividends, or is the money you need to make it worth while not worth the risk?
Thanks

 

[BIG BWACULL]

Re: shorting stock as they go ex-dividend

Hi,
Even though I have been looking at this site for a while, this is only my 2nd thread. I hope this doesn't sound like 2 silly questions. I have been looking at a few stocks latley around the dividend end date. They seem to have all dropped as the the stock goes dividend- I think I understand why...but, is it a possible strategy to short a stock while it goes ex-dividend, to take advantage as the stock goes down from paying the share holders, is there any other major risk involved?

Also, is there a time limit on how long you need to hold stocks to take advandage of company dividend pay outs, do you have to hold the stock a certain amount of time to be intitled to dividends, or is the money you need to make it worth while not worth the risk?
Thanks

Best place to start i think, is asking ROZELLA, on this thread
https://www.aussiestockforums.com/forums/showthread.php?t=454&page=47&highlight=dividend+share+price

 

[123enen]

Re: shorting stock as they go ex-dividend

Afraid it's not that simple.

If you hold a short position when a stock goes ex dividend you need to pay the broker/ owner of the borrowed stock the dividend amount PLUS the franking credit amount.
The real owner of the stock is entitled to the dividend and franking credit.
-----------------------------------------------------------
If you are long on a stock that pays a dividend you get the dividend amount regardless of how long you have held the stock BUT you are not entitled to the accompanying franking credit tax benefit unless you have held the stock for at least 45 full days ( plus 1 day acquisition and 1 day disposal .. so basically 47 days ). Preference shares require 90 days.

It does not matter when you buy the share, you can buy it one day before ex date but you must then hold it for a total of 45+ days.
You could buy it 47 days before ex date and sell on ex date.

There is an exemption to the above rule. Depends on how much franking credit your earn in a year.
You should get hold of
http://www.ato.gov.au/content/downloads/NAT2632-06.pdf

 

[reece55]

Re: shorting stock as they go ex-dividend

123 is right on the money here - every stock is reset the day after the ex-div date, so the market will normally open pretty much last close - divy, unless there is significant news/market movement that morning.....

Theoretically, if you are targeting dividend traders who will be looking to get out after extracting the divy and therefore place a drag on the market, this might work. But it would want to be over a short time frame..... In my experience in this bull market, the stock just rallies back to where it was before.....

Someone may have some more concrete evidence than just my feeling, but I don't reckon this would be a profitable strategy.....

Cheers

 

[CanOz]

Re: shorting stock as they go ex-dividend

In my experience in this bull market, the stock just rallies back to where it was before.....

Tell that to WBC will you Reece!...got stopped out waiting for that one...got the divy anyway.

Cheers,

 

[It's Snake Pliskin]

Re: Shorting stock as they go ex-dividend

Hi,
Even though I have been looking at this site for a while, this is only my 2nd thread. I hope this doesn't sound like 2 silly questions. I have been looking at a few stocks latley around the dividend end date. They seem to have all dropped as the the stock goes dividend- I think I understand why...but, is it a possible strategy to short a stock while it goes ex-dividend, to take advantage as the stock goes down from paying the share holders, is there any other major risk involved?

Also, is there a time limit on how long you need to hold stocks to take advandage of company dividend pay outs, do you have to hold the stock a certain amount of time to be intitled to dividends, or is the money you need to make it worth while not worth the risk?
Thanks

It is a lazy strategy and you may find CFD providers stop shorts on some stocks that drop due to dividends.

 

[nizar]

Re: shorting stock as they go ex-dividend

123 is right on the money here - every stock is reset the day after the ex-div date, so the market will normally open pretty much last close - divy, unless there is significant news/market movement that morning.....

Yeh like ZFX.
Last year it paid a massive dividend, opening lower on the ex-div day, and then closed about 5% higher.
Gotta love bullmarkets

 

[ASX_blob]

Re: shorting stock as they go ex-dividend

Afraid it's not that simple.

If you hold a short position when a stock goes ex dividend you need to pay the broker/ owner of the borrowed stock the dividend amount PLUS the franking credit amount.
The real owner of the stock is entitled to the dividend and franking credit.

Looks like 123enen is correct.
http://www.trading-glossary.com/e0201.asp

My question is, if you hold a short position on a stock that goes ex-dividend, are you paying the dividend amount PLUS the franking credit money from your own pocket?

Or do you receive the dividend money, and are expected to repay the broker/owner the money. i.e. you still benefit from shorting the falling stock, and are just passing the dividend money on.

Cheers.

 

[ASX_blob]

Re: Shorting stock as they go ex-dividend

Found the answer:

'The short seller has to pay the dividend out of pocket.'

source: http://invest-faq.com/articles/trade-short.html