Interest, dividends, capital gains - an all-in-one investment strategy, Part 4
moneyrelations :: Dec.20.2007
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Today is the fourth day in a 5-part series on swing trading for interest, dividends and capital gains.
Let’s recap what has been discussed so far.
Day 1 explained dividend terminology. It also explained why the share price of a company’s stock drops on Ex-dividend date. The market takes into account the dividend payout when things stay the course with no news.
Day 2 defined Exchange Traded Funds. Some ETFs also distribute dividends but the share price does not necessarily drop by the dividend $/share amount on Ex-dividend date. The reason? Because they track securities.
Day 3 provided an actual example that put these two concepts together. I explained how a trader can make money with dividends and have a capital gain within a 2 day turn around.
Today I’ll talk about the conditions needed to make this strategy successful.
Obviously, the difference in the buy and sell price plus commission fees cannot exceed the dividend. This is a given. Therefore, the higher the dividend, the greater the “wiggle” room and chance for profit.
How can I protect the dividend? By doing a lot of studying.
- Historically, is the typical ETF trading range greater than the dividend declared?
- Are there any economic data coming out that would affect my buying and selling price?
- Along the same vein, are any bellwether companies reporting during this time?
- How closely does the ETF track the underlying securities?
- How liquid is the ETF?
- Am I comfortable with this strategy if I end up losing money?
Having done my homework and understanding the risks and consequences, I did buy Proshares QID yesterday at $40.32 and today is the Ex-dividend date. I am looking at a $0.47092 dividend cushion.
Despite my joking around about killing my brother if this doesn’t work, I have enough confidence in him to trade for me. Today, I’m depending on his skill to read market activity to pocket some of this dividend and even get a capital gain.
I’ll let you know how this turns out tomorrow 
Definitions, Investing, Swing trading ::
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