Interest, dividends, capital gains – an all-in-one investment strategy, Part 6
moneyrelations :: Jan.07.2008
Hello, stranger! New here? How about subscribing to my RSS feed? Thanks for visiting!
Today is a special conclusion to the swing trading strategy I posted last month.
Last Friday, the U.S. markets tumbled based on a bad jobs report, stoking the fires of a recession.
For a brief instant, I was happy.
I had entered a position on December 19 in ProShares UltraShort (QID) which tracks approximately twice the inverse of the Nasdaq-100. I had bought the shares at $40.34 for an Ex-dividend strategy.
On January 4, amidst the news of the jobs report, the Nasdaq shedded 3.8% but my QID went up on the day by 9%. I sold my shares of QID at $42.34.
So, in a little less than half a month, with a low volume trading holiday season, I pocketed a $2.00 capital gain and a $0.47 dividend/sh from the QID.
(2.00 + 0.47)/40.34 = 6.1 % before-tax return in 16 calendar days (i.e., Dec. 19 through Jan. 4) or an impressive annualized return of 6.1% / 16 x 365 = 139.16%! (Note: all terms USD and not including trading fees.)
Not bad, but to be totally honest, it didn’t go according to plan.
I was hoping for a 2 day turnaround – buy it, and sell it the next day to pick up the dividend and any small fluctuations for capital gains. However at that time, Oracle came out with their earnings report and it was good. As a result, the QID that I bought went down by more than $2. RIM followed soon after surpassing expectations as well. I had been down by more than $4 at one point.
I was not going to sell at a loss since I knew the U.S. was still in trouble with the threat of a recession. I was going to wait it out.
While the best scenario didn’t transpire, this wasn’t bad for a first try.
So score 1 for the bro and his stock market 101 advice. Maybe I’ll try something else he has to offer if he can stop gloating long enough.
Definitions, Investing, Swing trading ::
6 Comments »
Did you enjoy the post?
Subscribe to Money Relations and the Comments as well.
Share in Social Media
Related Posts:
- Interest, dividends, capital gains – an all-in-one investment strategy, Part 2
- Interest, dividends, capital gains – an all-in-one investment strategy, Part 5
- Interest, dividends, capital gains – an all-in-one investment strategy, Part 4
- Interest, dividends, capital gains – an all-in-one investment strategy, Part 1
- Interest, dividends, capital gains – an all-in-one investment strategy, Part 3
Hi Mariam – question: how much time each day do you spend reading/watching BNN etc. to keep so well informed? I thought I was all up-to-speed having watched the debates in new hampshire, but had no idea the US market took a tumble. What do you read/watch? And do you keep an Investing-Glossary-for-Us-Normal-People beside you?
Let me in on your secrets!
Nice, Ignore the actual $ figure and that is a % winner… well done
@ Nancy
Ahh, no secrets! Investing is just something I’m interested in. Although I know the generalities of politics, I wouldn’t be able to talk about the particulars of the U.S. debates!
I probably spend 1 hour a day reading the financial headlines and then I zero in on a topic to research later on. I usually write/research on the weekends or have drafts prepared to be word-smithed later – this takes me HOURS as I’m picky. There’s no way I can come up with something the night before unless it’s a short article. This one in particular didn’t take long at all to write, maybe 30 minutes. Just the facts
I read a lot of the Economist, Forbes and CNN.
I don’t watch much TV. I averaged about 2 hours a week with Heroes and Prison Break but they are on hiatus now so I watch even less now. Although I did watch American Gladiator last night
@ Paul
Thanks, Paul. I don’t know if it was in the plans as my brother is gloating but it reminds me of the dot com days where everything was going up. In days like these, it seems like it’s one bad report after the other and the mood is general pessimism. It was only a matter of time… And it seems as though I could have held on for more, but oh well. Can’t complain.
I too have been dabbling with UltraShorts. So far, the financial (SKF) and Real Estate (SRS). But for the life of me, I can’t figure out how an UltraShort pays a dividend. If the underlying strategy is a short position, it would be the opposite (i.e. a dividend charge) Any ideas?
Hey Bob,
I think it’s all in the terminology – perhaps it should be called distribution.
If you look on the Proshares website, the distribution is made up of dividends and short term and long term capital gains. According to Seeking Alpha, they accomplish these capital gains with futures and swaps.
Truth be told, I’m surprised about the comments I’ve received so far and also by reading on message boards. Why a dividend charge? Why do people believe they have to pay it back if you short it?
The bottom line is that the company declared a dividend, they are obligated to pay the shareholder of record.
Am I missing something here? Wouldn’t be the first time
Okay, scrap my last response, after some further investigation, I finally figured this out.
I finally understand why everyone was asking me if I have to pay a dividend.
Here’s how I now understand this scenario involving shorting and dividends.
Person A owns shares of company X
Person B borrows from Person A shares of company X and sells to Person C
Company X declares dividends but who does it give it to? Person A or Person C? (2 owners of the same shares.)
Let’s say the company gives it to Person A. Person B is on the hook to pay the dividend to Person C (in addition to giving back the shares to Person A).
Getting back to the Ultrashorts…
They have the characteristics of shorting but they are based on derivatives – swaps, futures like Seeking Alpha explained.
But I never shorted!
That’s what got me so confused. But thanks, for the question, Bob. This makes me aware. Shorting is probably something I’ll try in the future as well
I knew there was something I wasn’t comprehending because I just saw this way too many times. But no, I don’t have to pay someone else a dividend