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.
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