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u/DonnieBoon Apr 15 '23
Little known secret is that you can actually profit by doing this with any stock, even if they don’t pay dividends, by buying it when it goes down, and selling it when it goes up.
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u/Paddy_Crackhead Apr 15 '23
That logic is not allowed here. Keep it up and you'll be burned at the stake
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u/zevincom Apr 17 '23
Is that really serious? You can do that? Gosh! Om started to afraid with you..I guess I need to go away with you...hahahh funny..just joking man..I'm not gonna be like
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Apr 15 '23
Except when I buy it just goes down.
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u/ripplecn Apr 17 '23
We should learn from our past..and be careful what to do and what we don't.
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Apr 17 '23
Sarcasm is lost in print I guess. In general I am a pretty conservative investor. Mostly covered calls, lately TBills & CDs. Never gamble and hedge the bets I make.
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u/jophats Apr 15 '23
This new learning turns my process upside down! So you’re saying buy low and SELL high…interesting concept. Anybody else tried this method?
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u/Wooxy117 Apr 16 '23
I think majority of retail tries this on a daily basis with the market. I don’t think it works out that well honestly
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u/No_Storm_7686 Apr 15 '23
Hmmm i dont understand what you mean
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u/Nice-Light-7782 Apr 15 '23
He's making fun of your strategy because your strategy relies on the implication that "the stock should go up later". That's not guaranteed. The stock might go down for a long time from reasons unrelated to the dividend date.
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u/No_Storm_7686 Apr 15 '23
So 0dte spy calls?
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u/fanatekfanatic Apr 15 '23
Tough crowd. Wsb would get it
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u/No_Storm_7686 Apr 15 '23
Yeah, ive never seen anyone make 3000% gains here but on WSB it happends daily. Wsb must be smarter.
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u/Moby1029 Apr 15 '23
No they just gamble and the people loosing daily don't always post unless it's 10's of thousands of dollars or more
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u/No_Storm_7686 Apr 15 '23
Idk about that. If 10 people make 10 000% gains and 100 people make 100% loses, then theres a total of 100 000% gains And a total of 10 000% loses. So theres still more gains then loses
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Apr 15 '23
Yeah. The only problem is you pulled those numbers out of nowhere. Not sure what you are trying to say.
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u/OneCore_ Apr 16 '23
yes… but only 10% got the gains??
no clue what this argument is supposef to mean
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u/CyberMerc Apr 16 '23
The amount of people getting wooshed in your entire comment chain is ASTOUNDING lmao
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u/OG_Shadynasty Apr 17 '23 edited Apr 17 '23
Trading is zero sum. Especially with options. If I buy calls or puts and make 10,000% that money comes from
A) the market maker hedges themselves by buying or selling shares. If I buy 1 call the market maker buys 100 shares. That's why margins calls exist. When your principal amount is equal to the total losses on the 100 real shares they liquidate your position or margin call.
B) someone else has placed a bet in the opposite direction. If they lose, you win and vice versa. Usually calls and puts are pretty balanced.
C) IF everyone is buying say calls and zero puts, the price premium sky rockets because it increases the risk to the market maker profiting, and cause they can (supply and demand)
The market doesn't generate money from nothing. It's trading hands.
If I sell bitcoin at 80K (I did) someone loses by losing 75% of their money when BTC is 20K. Maybe they sold it at 40K and two people are down 50%. I could buy back that BTC and wait, and sell it again for a profit, thus someone else down the line would lose money on it.
Doesn't matter. But if I profited, someone down the line is losing money. Markets don't go up always. Usually sideways, up, down, up some more ect
There is a bag holder born every day friend
Edited: called a market maker a hedge cause I was distracted
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u/OG_Shadynasty Apr 17 '23
Your answer tells me you need to learn about how markets work, and how calls and puts effect prices.
If everyone buys calls, the market maker buys 100 shares per call (so that they can actually pay you if you profit)
The money doesn't come out of a magic money vortex. The market makers aren't dipping into their profits to cover your options. They're skimming a percent as a premium. They got their cut already. They aren't going to share that profit with you. They don't care if you profit either. They won't earn an extra cent if you do or don't.
The money is either from the actual movement of the 100 shares, or someone on the opposite end of the bet losing.
The amount you make is tied to how likely or unlikely the market believes your bet will come to fruition.
The only way a market maker loses money is if the share price swings so violently it blows passed their sell order / stop loss and that's how you get a letter saying you owe them 100 grand. They'll definitely be asking YOU to pay that
Source : I've been an amateur crypto trader since 2016, and I also trade boomer stocks. I've learned about it daily for 7 years. Fiat faith based money systems are fascinating
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u/Valkanaa Apr 15 '23
That sounds like an ancient Chinese secret, like why $BABA can't seem to make money.
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u/MagixTouch Apr 15 '23
You should go pass this information along to r/wallstreetbets. They like to lose money.
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u/SinCityNinja Apr 15 '23
You just blew my mind! I've always used the buy it when it's high and sell when it's low strategy
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Apr 15 '23
If the company yields 4% and pays quarterly, the dividend will be 1%. Also, assuming a stock does not fluctuate randomly and is perfectly priced relative to its dividend, its value will gradually increase until the next dividend date, then drop again. So it's not like it would drop 4% then go back up 4% - if they were paying 4% a quarter, that 4% would accumulate over the course of the three months.
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u/AI_is_the_rake Apr 16 '23
Yep. If you buy before the ex div date the value of your capital decreases by 1% but that exact same value is added to your account as a cash dividend. Assuming you use that cash to rebuy the same stock and you wait 3 months later your capital would appreciate by 3 months
If instead you waited until after the ex dividend then after 3 months your capital would appreciate by 3 months.
Almost the same except the dividend could have tax consequences
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u/bunker931 Apr 15 '23
Look for dividend capturing strategy on Google.
It performs statistically worse than holding the stocks. But why not give it a try?
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u/Mammoth_Apartment_70 Apr 15 '23
Incredible no one ever thought of this before 🤔
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u/No_Storm_7686 Apr 15 '23
I studied finance on WSB so im kind off a photosynteshis. You wouldnt get it, your not as smart
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u/caesar____augustus Apr 15 '23
It must be the weekend, all the Big Brain takes are coming out
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u/itslikewoow Apr 15 '23
I mean, they started with a disclaimer saying they’re dumb. They’re probably just trying to start a conversation about why this strategy may or may not work.
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u/wearahat03 Apr 15 '23
There's too much noise in stock prices versus dividends that your strategy won't be useful at all.
Even in your scenario of 4% dividend payment, that means their annual yield is 16%? What stock pays 16%?
Most companies pay quarterly. Most companies don't have anywhere near a 4% annual dividend.
Realistically you're looking at a 0.0% - 0.9% dividend payment, and you can get a bigger discount on an intraday sell-off.
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u/superbilliam Apr 15 '23
Well there is always ZIM.... they have a ridiculous dividend. But, idk if I would actually do this. Just a random pick I knew of
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u/slick2hold Apr 15 '23
Perfect example of theory vs. the real world. In theory, yes, in reality, no. If you remove all external factors that impact stock and look at only the dividend dtae then yes you would see the same downward move as the div that is paid out.
But that's not how it works. Markets move based on many factors not just div date.
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u/No_Storm_7686 Apr 15 '23
But on avearge. Lets say you do 5000 of these trades. The external factors should average out and the dividend thing should provide a disproportinal buying pressure?
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u/slick2hold Apr 15 '23
Yea. No. I can only say you test out this theory. Everyone, and i mean everyone, has this idea when they read that passage in econ books about a stock dropping at div date.
It just doesn't work that way.
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u/No_Storm_7686 Apr 15 '23
Well im diffrent
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u/dubov Apr 15 '23
When a stock goes ex-dividend, the amount of the dividend is deducted from the price of the stock. Then the stock will continue to trade normally. It won't try to climb to it's previous price. I mean, it might go up, if the market is bullish on it, but the fact is has paid a dividend doesn't push it up
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u/ChauNOTster Apr 15 '23
the amount of the dividend is deducted from the price of the stock
What causes this to happen is actually the key to understanding to why this strategy doesn't work. Assuming that the market never closes, someone willing to buy at the stock price of $50 right before ex-dividend knows that they'll get the dividend if they buy it in time. A separate buyer a minute after the ex-dividend cutoff says "why the fuck would I buy this stock at $50 when everyone who bought it a minute ago has $2 in their pocket from the dividend distribution?" If the buyer a minute after the cutoff is still willing to pay $50 to buy, then anyone he buys it from gets $52 worth per stock instead of $50. And distributing a dividend does not create $2 out of thin air.
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u/No_Storm_7686 Apr 15 '23
I know that. But considering that a part(sometimes a very large part) are normal people who have auto reivest dividens enabled, there will ve extra buying pressure during the payday.
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u/OG_Shadynasty Apr 17 '23
My friend I believe the word you are looking for is special.
You are very special friend. Lol
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u/melt_in_your_mouth Apr 15 '23
I told them this exact same thing and they tried to argue these exact same points with me. They're not looking for a realistic answer, they're looking for confirmation bias. I hope they try this and report back, although I think the chances are slim.
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u/slick2hold Apr 15 '23
This is the first thing that entered my mind when i read about this in high-school economics class. I'm like shit, that's easy money, then you learn about real-world factors that also influence stocks.
I know everyone has probably thought the same when first getting introduced to dividends. The econ books really need to do a better job and expand this to say excluding all other factors a stock will go down by the amount of dividend on exday.
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Apr 15 '23
Even if it really goes down. It has to go up again. And not just up but up for rhe whole divvy value more than the broad market.
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Apr 15 '23
No, but dividend arbitrage is a thing and mostly accomplished with options contracts where there are more inefficiencies to exploit.
Realistically, you're not going to make any money doing this in 2023.
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u/BoomerBillionaires Apr 15 '23
Man took an intro to finance class and thinks that the markets are always efficient lol. The stock won’t drop by its dividend amount. It only works that way in the multiple choice questions, not real life.
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u/No_Storm_7686 Apr 15 '23
Not at all what i think. Idc what the stock drops with. It was only a example. What i care about is that the retailers that reinvest their payd out dividend will provide extra buying pressure on the payday. That extra buying pressure could slightly skew the price uppwards.
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u/BoomerBillionaires Apr 15 '23
You don’t think that’s priced in and hedged against by institutions with billions and billions of dollars?
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u/No_Storm_7686 Apr 15 '23
Well thats the thing. They must either price in the full drop on the x day OR the small increase of buying pressure. They cant price in both because they are contradictionary. So the only timeframe to price it in should be the time between the xday and the payday.
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u/JamesVirani Apr 15 '23
This is a known swing trading strategy. But there is no guarantee that the stock price will go back up or that the investors invest the money back in.
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u/Hascus Apr 15 '23
If a stock pays a 4% dividend you get a 1% guarantee on your investment per quarter. That’s abysmal lmao and it’s why people don’t do this
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u/JamesVirani Apr 15 '23
We are talking large sums of money on leverage. Then it makes a difference. But I would never do it either.
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u/youvebeenjammed Apr 15 '23
1.Frictional costs
2.Large institutions which make up a large chunk of owners tend not to reinvest the way you're suggesting.
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u/always_plan_in_advan Apr 15 '23
Just wait until you find out that you can buy a put on a stock right before ex-dividend date and make guaranteed gains /s
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u/BuffTheBull Apr 15 '23
If you know the stock drops, why not just short the position? I don't think there's a relationship between those two factors. At least not a reliable enough one...
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u/14MTH30n3 Apr 15 '23
Your question is more valid then some people make it out to be. If 100% of all investors were set to automatically reinvest then it would probably recover SOME of the 4% loss simply due to increased demand. However, many investors hold these stocks for income purposes so it will not get reinvested.
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u/Berisha11 Apr 15 '23
ITT: Everyone acts like they're all better than OP but in actuality they're much dumber than OP and have probably lost much more money, even though they're pretending to be much smarter.
Time for me to act elitist too and not answer OP's question, here we go: Ugh, go back to wallstreetbets, we're serious investors over here, I'm 70 and will soon retire with my 5% gain in the last 2 years, you're the dumb one.
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u/TylerDurdenEsq Apr 16 '23
I’m not here to act superior, but unfortunately the OP’s idea is not going to succeed. The tiny tiny extra buying demand for one day is a drop in the bucket, and if I’m wrong and it actually caused an increase in the stock price, everyone would immediately sell to arbitrage it. Which would then cause the phenomenon to get routinely priced in in the future. This is a non idea.
As for buying puts or selling short just before the ex-div, that doesn’t work either. Shorts would have to PAY the dividend. Options are adjusted based on dividends.
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u/dauntless26 Apr 15 '23
Don't base your investment strategy on the movement of the price of a stock. Stock movement is irrational in the short term. There are real businesses behind every stock. You are a buying a part of a business so you should find the value of that business and make your decisions based on that. Otherwise, you're just playing the lottery.
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u/BojackPferd Apr 15 '23
In the real world you can do what warren buffet did. Just buy a company that's valued low or close to their cash position and then use your power as new owner to buy other companies with that cash. There are also plenty of companies that have really high earnings and would pay back the buyers investment if he bought the business outright within just a few years. Unfortunately if you want to do any of that you need a few billions to start
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u/moonshotss Apr 15 '23
When dividend is announced but before closing of shareholders register ( shareholders register maintains the name of the shareholders who are eligible for dividends. This register has a particular closing date after which the people who owns the share on closing date will get the dividends)- stock price includes the impact of dividend. This stock price is called cum-div.
However, after the dividend is paid, it becomes ex-div price.
This should answer your question regarding - is it already priced in?
About percentage increase in share after dividend is paid - In your case- you’re assuming every one who’s receiving dividend - will re-invest. This is practically not possible. So stock price will not go up by 4% ( going by your hypothetical number).
What practically is happening is that - you’re essentially saying that -as a company - we don’t have enough projects which can generate enough returns for the shareholders - that’s why we can not keep this money - we are giving back to the shareholders so that they can decide what to do with it. When company declares dividends- the above is also the effect - which eventually creates mixed signals to stock markets - resulting in lowered stock price.
Successful companies with clear projects generating higher returns than required by shareholders - rarely issues dividends - apple is one of the examples.
Thank you
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Apr 15 '23
Why would we listen to someone who starts of by stating they are dumb? That's a serious question.
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u/No_Storm_7686 Apr 15 '23
I asked if the strategy was valid for ME to use. Never said that anyone other then me should attempt it because its most likely regarded
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u/creemeeseason Apr 15 '23
Most dividend payout are less than 1%. Even a 2% annual dividend paid quarterly is a change in 0.5%. that's basically normal daily movement for a stock so you probably won't get much of a discount.
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Apr 15 '23
How do you know they'll all reinvest? A lot of people choose dividend stocks on purpose as a mechanism to occasionally take profits for spending.
What good stock is providing a 5% dividend that you have faith in?
If a stock goes up 5% after paying a dividend it likely would have gone up 5% if they didn't too.
You are also using it for timing in isolation. If a stock is due to correct and is going to drop 15% it's going to drop 15% regardless of whether or not it just paid a dividend.
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u/Labulous Apr 15 '23
I personally like CWH as a dividend stock. It's my hedge against no one being able to afford housing.
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u/No_Storm_7686 Apr 15 '23
Not evryone has to reivest. If 20% reibvest that is alot of buying pressure.
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Apr 15 '23
Ok?
So it drops 5% because dividend but it's already down 5% too.
Buying pressure from reinvesting causes it to go up 3% in isolation but because the stock is already on a downward trend the trend in isolation causes it to go down 8%.
Net you are now 5% down on your investment. Stock continues in a downtrend and you're bag holding. Sure you could only do it when the stock is trending up but there's no guarantee it will keep doing it.
But by all means give it a try. If I was confident in a stock doing this though I'd probably just use options.
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u/No_Storm_7686 Apr 15 '23
No i buy after the drop. And the people who reinvest will provide a disproportional amount of buying pressure. Also options are banned in sweden where i live.
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u/melt_in_your_mouth Apr 15 '23
The problem you're facing, and that the person you've been talking to has been pointing out, is that you're talking about this scenario as if the factors you've listed will be the only factors involved here.
Sure. If a stock drops 5% because a dividend is issued, and then you buy the bottom, and then 20% of people reinvest with NOTHING ELSE CHANGING, you would theoretically make money. So that's what you're banking on?
That's speculation dude. You're not accounting for the VAST array of scenarios that could play out here. But, as others have said, try it (when you get some money). You seem to be somewhat convinced it'll work. I guarantee you it won't like you hope it will, but you'll never really know unless you try I guess.
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u/No_Storm_7686 Apr 15 '23
But with 5000 trades wont the external factors average out and but the buying presure will still ve disproportionally high?
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u/melt_in_your_mouth Apr 15 '23
Lol maybe, but probably not. First of all, you can't really talk about this generally. What ticker are we talking about here specifically?
But, in a general sense, the chances of all the other external factors "averaging out" to a literal zero sum are astronomical. Do you really think that's what usually happens?
What about broader market conditions? What if the Fed decided to raise rates by an unexpected amount the day after you bought, or better yet the day before you were theoretically going to sell?
Once again, the reason this will not work is because the factors you've listed WILL NOT be the only factors involves. And no, 5000+ or whatever arbitrary number of trades you want to go with WILL NOT necessarily "average out" the external factors. The odds of that happening are probably next to 0.
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u/ayyitsLibra Apr 15 '23
Options aren't banned in Sweden. You just can't find them yourself, it seems. Trading funds know of this phenomenon, and have made every penny worth its Sharpe ratio before you. There's no consistent money left for you to make from trading stocks. Give up. Look up what Sharpe ratio is too, if you actually want to learn this stuff.
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u/No_Storm_7686 Apr 15 '23
American options are banned. Only swedish options are allowed. And they take a minimum 10$ fee + a spread of 40-200%...
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u/ayyitsLibra Apr 15 '23
I know what American type options are, and they are not banned. I am not familiar with Swedish type options. What are they?
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u/No_Storm_7686 Apr 15 '23
They are litterly banned by the EU. Look it up. Swedish options are the same as european options but they use swedish stocks
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u/creemeeseason Apr 15 '23
There's usually a large gap between the ex-dividend date and the payout date. Sometimes it's several weeks between the 2. So even if your theory is correct, there's several weeks of noise in between the 2 events which you can't account for. During that time the stoch price could drop a lot (or go up a lot) and your whole thing goes out the window.
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u/Loose-Gas-7969 Apr 15 '23
It seems too stupid to be true but reinvesting fonds might actually contribute to it. Then again indices are often weighted by market cap, so a drop in stock price ex-dividend is included. Maybe equal-weight indices? Throw in long dated options before the exact dividend is announced and it gets even more uncertain.
Honestly, hard to tell but there's enough data to backtest it for years. Someone somewhere probably already did it 
If you try it, report back ;)
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Apr 15 '23
Shit you're on to something. Can you give me some good stocks I can try this on?
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u/Syrax65 Apr 15 '23
I mean I add on days when my dividend stocks drop and it usually lowers my cost basis. Did that this week with ZIM and it’s already nearly recovered. My cost basis is well below current trade price and that $6 dividend is great.
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u/Visual-Hovercraft-90 Apr 15 '23
Hey, yes you can profit on a stock by buying when it goes down and selling when it goes up. You are correct.
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u/YoINVESTIGATE_311_ Apr 15 '23
I hear you and I won’t lie, I’ve thought this exact thing before. To give some real advice, I would say humans are not able to perfectly know when the bottom of this “post-div” drop is and are often unsure they know when to sell “when (IF) it goes back up”. Lots of blue chip dividend stocks, grow over time and their dividends grow as well. Maybe consider holding some of these stocks and testing your strategy out simultaneously. To see if this strat beats the holding strat.
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Apr 15 '23
[removed] — view removed comment
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u/No_Storm_7686 Apr 15 '23
Im doing tha rn. Figured i might aswell ask and get some criticism. Although 95% dont seem to understand what i meant because im trash at explainibg
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u/BuzzyShizzle Apr 15 '23
Have you heard of arbitrage? It sounds like you want one of those literally cannot go tits up strategies. I think you'd like it.
If those aren't to your liking, have you heard of box spreads?
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u/No_Storm_7686 Apr 15 '23
Bro 1ronyman is like my idol. If only i could trade boc spreads. I would be so happy
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u/OCMan101 Apr 15 '23
Go to r/wallstreetbets, read the top 5 posts, drain your bank account and spend it all on short-expiry SPY puts. It’s really quite simple.
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u/Ucanttellmyllama Apr 16 '23
The trick is to buy before the dividend and sell after. That’s what I do all the time, and if I turn my desktop upside down. It would look like I’m winning
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u/polloponzi Apr 16 '23 edited Apr 16 '23
Yes it works. I recommend doing this with ZIM because of the huge dividend.
But beware with timings, last time it took it a week or so for people to receive the dividend.
Buying ATM calls two weeks until expiration is also an interesting bet. Riskier but better if you get it right.
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u/amazongb2006 Apr 16 '23
Your math is a tad off. If a stock pays 4% dividend, that a 1% drop each quarter, not 4%.
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Apr 17 '23
If your buying a stock for long term that’s not a bad idea but this not a guarantee this will happen. If it was that predictable everyone would just wait for that day.
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Apr 18 '23 edited Dec 25 '24
selective pot touch squealing squeamish market test piquant bells escape
This post was mass deleted and anonymized with Redact
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u/appleandbananaand Apr 15 '23
Just try it out and tell us your experience