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Author: Larry Potter Article source: http://www.vt.org/. Used with author's permission.
It is called "dividend capture". This strategy is executed
when a trader buys a stock just before the ex-dividend date, so
that he or she will be a shareholder of record on the record
date, and will receive the dividend. Because the stock falls by
the amount of the dividend on the ex-dividend date, the
strategy calls for the trader to then wait for the stock to
move back to the price where he or she bought it before the
ex-dividend date. At this point, the stock is sold for a
break even trade. Thus the dividend is received, or captured by
the trader with no further exposure to the movement in the
stock price after it is sold for a break even.
When attempting to execute this short term trading strategy,
look for stocks with high volume, and a relatively large
dividend payment. Higher volume facilitates exiting the
position without affecting the stock price. The high dividend
allows for more profit potential. Use of a discount broker is
also beneficial as it will reduce the overall cost of the
trade, and increase the return of implementing the strategy.
Please note that this is an aggressive trading strategy, and
not appropriate for everyone. Study the concept. "Paper
trading", or practicing the strategy before using actual money
is always a prudent step when implementing new strategies
into your portfolio of trading tools. For more FREE trading tips, enter your email address at:
http://lb.bcentral.com/ex/manage/subscriberprefs?customerid=12826
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