BRS/Hedge Selling before Ex-Dividend Date

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  • #77415
    stefan.heinrich
    Participant

    Hey guys,
    All securities in the strategies are traded on US exchanges and are subject to 30% withholding tax on dividends.
    I was thinking to sell before the ex-dividend date to avoid be hit by the tax.
    As far as I understand NAV will increase over time and dividend amount subtracted on ex-dividend date prior to open.

    This strategy should work on bonds like TLT or TIP that actually have their ex-div date on 1st of the month. So selling might make sense as new allocation for next month might not have them in the strategy.

    TLT currently has a yield of 2.2% on an investment of 100k that’s 660 of tax.

    Granted to the open price on ex-div date might be low or higher due to buying / selling pressure. Fees are not an issue for me as each trade is 1$ with my broker. Any thoughts?

    #77467

    A way to avoid witholding tax could be to buy UB or ZB futures instead of the ETFs. I use ZB futures and once you roll from March to June you get the further out Future about 0.7% cheaper because of the dividend. Disadvantage is that one Future is about 150’000$, so it is not something for smaller accounts.

    #77468

    Another way to avoid witholding tax is to sell delta 50 TLT put option at least 6 months out, which is similar to a long TLT position. Advantage is that you collect premium. Disadvantage is that your delta $ exposure changes with bigger TLT moves and so it needs sometimes readjustments.

    #77470
    stefan.heinrich
    Participant

    Appreciate the response, Frank. I’ll looking into these options…

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