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?
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.