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Stock question- possible strategy

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Stock question- possible strategy

Postby AEMRICH » Sat Sep 22, 2007 5:11 pm

Hey guys i've got a question involving stocks. My first question is when you short a stock do you still get the dividend? Say you find a stock that has a 14% dividend, if you were to buy 500 shares of this stock and then short 500 shares of this stock (at the same price) for a year this would neutralize any gains and loses yes? but you would still be getting 14% gain on 1000 shares of this stock minus your transaction fees. 14% is almost 3x more than any CD is offering. Is there a flaw in my thinking??
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Re: Stock question- possible strategy

Postby bleach168 » Sat Sep 22, 2007 6:23 pm

The idea behind shorting a stock is you borrow someone else's shares to sell right away with a promise to return those shares when you are done shorting. Since you never really have possession of the stock, you will not receive any dividends.
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Re: Stock question- possible strategy

Postby AEMRICH » Sat Sep 22, 2007 8:00 pm

bleach168 wrote:The idea behind shorting a stock is you borrow someone else's shares to sell right away with a promise to return those shares when you are done shorting. Since you never really have possession of the stock, you will not receive any dividends.


however i could still short those shares for a year yes??? and i would get the 14% on the shares that are not being shorted. Is this a bad idea?
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Re: Stock question- possible strategy

Postby bleach168 » Sat Sep 22, 2007 9:05 pm

If you're shorting 500 shares AND buying 500 shares, you won't be getting 14% return. You get a 7% return
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Re: Stock question- possible strategy

Postby AEMRICH » Sat Sep 22, 2007 9:20 pm

7% on the 1000 overall shares right? so it would be 14% on the 500 shares not being shorted. Do you think this is a bad strategy?
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Re: Stock question- possible strategy

Postby CheeseBeger » Sun Sep 23, 2007 4:00 pm

AEMRICH wrote:Hey guys i've got a question involving stocks. My first question is when you short a stock do you still get the dividend? Say you find a stock that has a 14% dividend, if you were to buy 500 shares of this stock and then short 500 shares of this stock (at the same price) for a year this would neutralize any gains and loses yes? but you would still be getting 14% gain on 1000 shares of this stock minus your transaction fees. 14% is almost 3x more than any CD is offering. Is there a flaw in my thinking??


Your not taking other important factors into account. As stated above you will receive dividends on the 500 shares which you own, but not on your 500 borrowed shares you are shorting.

- There are transaction fees
- There are taxes on dividends
- Not positive but I believe after you close your short position you are required by law to hold your long position for a minimum of 60 days. If you do not do this there is some sort of capital gains tax.
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Re: Stock question- possible strategy

Postby AEMRICH » Sun Sep 23, 2007 5:20 pm

alright it sounds like it is not a great strategy. I knew something had to be wrong with my thinking. Thanks guys
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Re: Stock question- possible strategy

Postby Curtis Pride » Thu Oct 04, 2007 12:53 am

And where the hell did you find a stock with a 14% dividend yield? Getting a 14% return above and beyond any appreciation in the stock is a pretty damn good investment.
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Re: Stock question- possible strategy

Postby RugbyD » Thu Oct 04, 2007 9:12 am

Curtis Pride wrote:And where the hell did you find a stock with a 14% dividend yield? Getting a 14% return above and beyond any appreciation in the stock is a pretty damn good investment.

REITs typically pay strong dividends because to be classified as a REIT for tax puropses, you have to pay out 90%+ of income. Some REITs that are really glorified specialty investment vehicles have high dividend yields, but with that comes a commensurate amount of risk.
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Re: Stock question- possible strategy

Postby Curtis Pride » Thu Oct 04, 2007 10:12 am

But a REIT isn't a company, and company's dividends don't fluctuate with income. If a company issues a $1.30 dividend, it's highly unlikely they'll lower that dividend. For if they do, it's a pretty bad sign of distress and many in Wall St. will run away from them.

Hell, I remember when I was a broker in '03 and AT&T had a 7% dividend yield and it was notable. A 14% yield would bring the house down.
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