Trading around dividend dates in those stocks that pay large dividends can be highly profitable. There are trade strategies designed to benefit from just before the dividend date to try to capture the dividend and there are trades designed to profit from trading on or immediately after the EX-Dividend date. A lot of investors do not understand how the EX-Dividend date work and how to profit from it.
Super Charge Buy-Write Strategy
My Super Charge Buy-Write Strategy is designed to profit before the X-Dividend date and is used not to capture a stock’s dividend directly, but instead to earn covered call premium and then be exercised out of the stock as soon as possible, preferably no later than the day the dividend is declared which is the day before the ex-dividend date.
EX-Dividend Date Stock Price Adjustment
However many investors do not understand that the day after a dividend is declared which is the EX-Dividend date, the stock price at the open is adjusted down, for the amount of the declared dividend as the stock has lost some of its value.
EX-Dividend Date For ScotiaBank Stock
For example, the EX-Dividend date for Bank Of Nova Scotia Stock was April 1, today. The dividend declared by closing on March 31 was 72 cents.
That means that as of the prior trading day the stock was trading with a value that contained the dividend of 72 cents. Basically then, until closing on March 31, ScotiaBank Stock was trading with the 72 cent dividend in the price of the stock.
At the close of trading on March 31, the day before ex-dividend date any investor holding stock at the close of trading will receive the dividend. That means even if an investor buys the stock on March 31 and is still holding the stock when markets close on March 31, they are entitled to the dividend.
The day after the dividend is declared which in the case of ScotiaBank Stock is April 1, the stock price at the open is adjusted down by 72 cents, the same amount as the dividend. This means it is trading without the dividend or ex-dividend.
This makes sense since the stock has paid out the dividend and the valuation of the stock is lower because it has lost 72 cents of value.
Theory Versus Reality With EX-Dividend Dates = Profit-Making Opportunity
That’s the theory behind the Ex-Dividend date. Luckily for investors the reality is often far different and it presents many profit-making opportunities.
Profiting From Understanding Ex-Dividend Date
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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.