Dividend capture strategy-views

#1
Hi all,

I am looking at a dividend capture strategy around web but didnt see it being discussed anywhere for indian markets.
So the strategy is

-buy the stock before ex-dividend date. equal to the size of FnO lot..
- sell one strike above OTM call
-After the ex-dividend date - sell the stock and buy back call - if in profit - or apply covered call strategy
-Get the dividend too.

Anyone with the view of what can go wrong or why it will not be beneficial ?

thanks
 

mohan.sic

Well-Known Member
#2
Hi all,

I am looking at a dividend capture strategy around web but didnt see it being discussed anywhere for indian markets.
So the strategy is

-buy the stock before ex-dividend date. equal to the size of FnO lot..
- sell one strike above OTM call
-After the ex-dividend date - sell the stock and buy back call - if in profit - or apply covered call strategy
-Get the dividend too.

Anyone with the view of what can go wrong or why it will not be beneficial ?

thanks

No practical sir.

1) Buy the stock before ex- div and sell it post record date - Yes you can get the dividend. But from record date onwards stock price will fall down to the extent of dividend. So technically you have to sell the stock at Loss, which includes ( Price fall + Del trade charges +cost of capital for the period ). So not practical always.

2) Sell OTM CE idea - Options prices will depend on Future Price. ( Prices of CE, PE & Future will have a parity between them ). And Future will trade at a discounted price from the ex-dividend phase itself. It means CE prices also will be trading at a discounted price before ex-dividend date itself. So Post ex-dividend date, CE prices will not fall though stock price falls down. So no point in selling.
 
Last edited:
#3
No practical sir.

1) Buy the stock before ex- div and sell it post record date - Yes you can get the dividend. But from record date onwards stock price will fall down to the extent of dividend. So technically you have to sell the stock at Loss, which includes ( Price fall + Del trade charges +cost of capital for the period ). So not practical always.

2) Sell OTM CE idea - Options prices will depend on Future Price. ( Prices of CE, PE & Future will have a parity between them ). And Future will trade at a discounted price from the ex-dividend phase itself. It means CE prices also will be trading at a discounted price before ex-dividend date itself. So Post ex-dividend date, CE prices will not fall though stock price falls down. So no point in selling.
I can see the records dates are not mentioned anywhere... Only ex dividend... Is there any info ?
I did paper trade for IOC.
27 mar 1.5rs ex dividend date.
Bought in cash 159 on 25 mar. 3500
Sold Apr 165 call at 5.55

28 mar - sold cash at 160
sold Apr call at 4.4

dividend 1.5* 3500

yes the mar future and options were adjusted accordingly to the dividend.so u can use next month options. But on expiry the option will adjust according to spot price , dividend or not ? Am I correct in that?


the only thing here is ex dividend date and record date which I can't find for IOC.. and record date is also not mentioned anywhere.

can you help me find that pls

thanks
 

mohan.sic

Well-Known Member
#4
I can see the records dates are not mentioned anywhere... Only ex dividend... Is there any info ?
I did paper trade for IOC.
27 mar 1.5rs ex dividend date.
Bought in cash 159 on 25 mar. 3500
Sold Apr 165 call at 5.55

28 mar - sold cash at 160
sold Apr call at 4.4

dividend 1.5* 3500

yes the mar future and options were adjusted accordingly to the dividend.so u can use next month options. But on expiry the option will adjust according to spot price , dividend or not ? Am I correct in that?


the only thing here is ex dividend date and record date which I can't find for IOC.. and record date is also not mentioned anywhere.

can you help me find that pls

thanks

Record date is 28th march. You will not be eligible for dividend here, So i guess whole setup is wrong.
 
#5
Record date is 28th march. You will not be eligible for dividend here, So i guess whole setup is wrong.
Aah.. finally found the record dates on below link
https://www.moneycontrol.com/stocks/marketinfo/dividends_declared/index.php

Also can you tell me why infosys record date is not shown please ?

Regarding the above calculation .closing the trades of on 29 march at end of the day
29 mar - sold cash at 162.85(closing price)
sold Apr call at 5.1
plus 1.5*3500 dividend


the only caveat is if there is loss in the cash market. it can lead to longer holding period where u can implement the covered call strategy till the price is met.
 
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mohan.sic

Well-Known Member
#6
Aah.. finally found the record dates on below link
https://www.moneycontrol.com/stocks/marketinfo/dividends_declared/index.php

Also can you tell me why infosys record date is not shown please ?

Regarding the above calculation .closing the trades of on 29 march at end of the day
29 mar - sold cash at 161.5
sold Apr call at 5.1
plus 1.5*3500 dividend

total profit : 7500~ for cash and call
dividend = 5250
margin = aroud 7lakhs.
holding period = 5 days

the only caveat is if there is loss in the cash market. it can lead to longer holding period where u can implement the covered call strategy till the price is met.

Lets look at your paper profit later. First look at your trade entry details:

Your Trade Entry details given in last post:

Date of entry: 25th march 2019.

1)Bought in cash 159 on 25 mar, qty- 3500
2) Sold Apr 165 call at 5.55

How did you arrive at above numbers. Are you sure of capturing the prices of Cash market and CE at the same time ? or Are they closing prices of 25th march. I am asking this because I see they are discrepant.
 
#7
Lets look at your paper profit later. First look at your trade entry details:

Your Trade Entry details given in last post:

Date of entry: 25th march 2019.

1)Bought in cash 159 on 25 mar, qty- 3500
2) Sold Apr 165 call at 5.55

How did you arrive at above numbers. Are you sure of capturing the prices of Cash market and CE at the same time ? or Are they closing prices of 25th march. I am asking this because I see they are discrepant.
Aah.. my mistake ... it was the closing price
1)Bought in cash 159 164 on 25 mar, qty- 3500
2) Sold Apr 165 call at 5.55

29 mar - sold cash at 162.85 (closing price)
sold Apr call at 5.1(closing price)
plus 1.5*3500 dividend
 

mohan.sic

Well-Known Member
#8
So it is clear now that the dividend (+1.5)you received is lost in delivery trade (-1.15+ brokerage and other costs. In fact the loss would be more than the dividend gain)

And comming to option trade, the profit of 0.45 should not even be considered. Because, you have taken closing prices for calculation. These closing prices are AVG of last 30 mts and not actual trade values. And more over, stock options are illiquid in current month itself, and here we have taken next month. Just imagine the bid-ask spread. This spread itself could be more than 0.5.
If you have trading exp in stock options, you can easily understand the problem of liquidity/bid-ask spreads in next month stock options. So this paper profit cannot be taken so easily in live.

So overall what did you gain on a investment of 7 lakhs APPX. Net loss mostly. or a break even if you are lucky. Is it worth ?
 
#9
So it is clear now that the dividend (+1.5)you received is lost in delivery trade (-1.15+ brokerage and other costs. In fact the loss would be more than the dividend gain)

And comming to option trade, the profit of 0.45 should not even be considered. Because, you have taken closing prices for calculation. These closing prices are AVG of last 30 mts and not actual trade values. And more over, stock options are illiquid in current month itself, and here we have taken next month. Just imagine the bid-ask spread. This spread itself could be more than 0.5.
If you have trading exp in stock options, you can easily understand the problem of liquidity/bid-ask spreads in next month stock options. So this paper profit cannot be taken so easily in live.

So overall what did you gain on a investment of 7 lakhs APPX. Net loss mostly. or a break even if you are lucky. Is it worth ?
yup thats what i have been looking at and doing paper trades...
will try to trade in live times for next ones and see how it goes..

Any place where we can see record date ? as infy declared the ex-dividend but no record date ?

thanks
 

mohan.sic

Well-Known Member
#10
yup thats what i have been looking at and doing paper trades...
will try to trade in live times for next ones and see how it goes..

Any place where we can see record date ? as infy declared the ex-dividend but no record date ?

thanks

Record date will be given by the company in its announcements.
Reliable source are Exchanges. You can check in BSE website.
For Infy it is June 15th. Ex dte: June 13th, Rs.10.5. Pls refer to below link
https://www.bseindia.com/stock-share-price/corp-actions/scripcode/500209/
 

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