SKC Dividend pairs trading strategy

[sammy84]

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]

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]

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]

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]

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]

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.



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.

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]

Trade #11 (Mock trade only)

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

 

[sammy84]

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

 

[skc]

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]

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]

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]

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

 

[skc]

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]

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]

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]

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.

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]

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]

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.

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

 

[skc]

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

How you go, Sammy?

Definitely going to test your exit skills today.

 

[sammy84]

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

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?