I have been looking at the following as a possible future trading strategy. I hasten to add that the numbers have not been checked and only two stocks (BLY, EPD) have been run. I throw it out for your consideration and comments. Basically, it adds a shorting factor in the beginning of each quarter to the later dividend run.
The following procedure would have produced a profit in EPD in 16 of the last 18 quarters (88% gaining). The average annual gain, using stock, would be 38%. The last four quarters only follow the same pattern with 1 loss out of the 4 periods (75% gaining), but with about the same annual stock gain (40%). Dividend returns for the same period using buy and hold = 5.4%.
Using the same strategy with options would have produced an average gain of well over 100%. (Assumes option prices reflect stock price changes on a more or less dollar for dollar basis, and average option price is 10% of stock price).
The strategy uses the entire period from EX-1 to next EX. Days are trading days. In stock mode, the dividend for the short must be paid, not collected, but on average starting at EX-1 adds 0.79 to the net per quarter, as opposed to starting at EX. Net average gain per quarter for all 18 quarters = $3.36 per share. Average for the last four quarters = $4.51 per share per quarter.
1. Short EPD at EX-1 day
2. Cover short at next Day 37
3. Go Long at next Day 37
4. Sell at next Day 61.
Commissions have been ignored in the above, and options gains would be increased by not having to pay the dividends for the short. More on this later.
Thank you for taking the time on EPD and sharing your research. I like it. I did the same as this a few years ago and shared with the board.
An item I would suggest that makes even more money and avoids the hassle of the short over the EX, is to short on the open of the EX date. I bet you were looking at the close, when doing your research, and then, yes, the previous day would have been better.
If you short on the open it even is a bigger producer over time. When I was serving some time in the Gulag, my Soviet inmates and I were Buying the Shares on the close , the day B4 EX, collecting the dividend and selling on the morning of the EX date.
We did this in early 2006, through 2008. Many times the open was higher than the close, the day before, even with the stock trading EX dividend. Check out those years(Pretty crazy). So, we had a one day hold on the shares(really 12 hours), we collected the 45-50 cent dividend, often making money on the change in PPS, and smiling at our jailers. They thought we had smuggled in some Vodka, but we were making money!!
Anyways, check it out. I like your plan, I just don't personally want to hold anything longer than a few weeks.
Doc -Thanks for the tip on the EX open/close. Also just generally, for your generous sharing of your expertise. (too many generals in that sentence, but you get the idea.) I've learned a lot and am gradually working up to using spreads. Not only making a little money, but it's FUN!