In your discussion of dividends you seem to say that you can buy and sell a stock on the dividend date of record and collect the dividend. Could you clarify the timing of the buy and sell?

There is a 3-day float with a stock transaction. Option transactions clear in a day, stock transactions in 3 days. Thus you can use the ‘float’ to buy a stock that is going to pay a dividend three sessions ahead of the record date, sell it the next session, be locked in for the dividend paydate, and move onto the next stock with a dividend you want to capture.

For example, say the dividend record date falls on a Thursday. It is a good idea to buy the stock as far out as you can so you can avoid price fluctuations around the record date (though the real price fluctuations are around the pay date when the stock price reflects part of the dividend paid). So, you can buy the stock on Monday as day one. You can then sell the stock on Tuesday. As it takes 3 days for the sale to ‘clear’, when the record day comes on Thursday, you are still in the 3-day window of ownership. You are already out of the stock and no longer subject to price fluctuations and are on to the next stock. Note that holidays and weekends are not counted; it is the actual trading session that counts as a day.

You want to narrow the spread as much as possible. Usually it is quite narrow as these are stable, non-volatile stocks. You also want to limit your exposure to the market as price fluctuations impact the return as you are dealing with smaller amounts. We like to buy right before the close and then sell right on the open the next day.