Capturing dividends--the path to low risk returns?

For a long time I have been intrigued with instantaneous jumps or in trader parlance "gaps" in stock prices. As near as I can tell there are 3 sources of these sorts of jumps where a stock price makes no attempt to trade at intermediate values, but rather pops up or falls immediately to a new level:

1. News surprises (e.g. due to earnings warnings, analyst upgrades, business deals, market panics),
2. Large blocks of stocks being bought or sold, and
3. Dividends. Dividends are interesting because they are announced ahead of time to happen on a certain date. On the "ex-dividend" date any shareholder that owned the stock prior to that day becomes eligible to receive a stated amount of money per share of stock that they own. It doesn't matter if you have owned the stock for one day before or 5 years --that money shows up in your brokerage account typically a couple of weeks later on the "distribution date".

The first two are inherently unpredictable, but wiht dividends, at least the date, and usually the amount is predictable.

With dividends the amount of money can be significant--for example NAT just paid out a dividend of $1.88 on a stock that was trading around $36 -- a 5.2% payout. At 1st glance this looks like a great deal, but like all things on Wall Street there is no free lunch. For starters, at opening, the day that the dividend is locked in--the ex-dividend date-- the stock typically drops an amount that is equivalent to the dividend. So, if you buy the stock to collect the dividend, you need to remember that the stock+dividend price at opening on the ex-dividend day will give you about a wash. The fun then begins as to whether the stock bounces back up to the previous day's level or drops due to participation in the general market action. Welcome to day trading....

Because of this dependence on market action, just buying stocks to capture the dividends is an iffy deal. I will write more posts on this subject detailing some of my attempts at capturing dividends without being immediately embroiled in market action.

Hobo's Stock list

GoGo Stocks
*AAPL (Apple) IPOD rules, Mac fades --is it just the transition to Intel, or is Apple a has-been in the computer business? Latest earning really looked pretty good--however their forecast is weak
*SBUX (Starbucks)

High Tech
*ALTR (Altera) FPGA mfg
*XLNX (Xilinx) FPGA mfg -Missed their Jan06 numbers after raising their guidance twice--CFO looks like a fool. Stock hammered 8% today (20-Jan-06)
*SNDK (Sandisk)
*QCOM (Qualcomm)
*RMBS (Rambus)

Retail
*AMZN (Amazon)
*BBY (Best Buy)

Old Guard High tech
*CSCO (Cisco)
*DELL (Dell) Business model in trouble, can they pull it out?
*HPQ (HP)
*INTC
*A (Agilent)

Internet
*EBAY
*GOOG Still not in the S&P 500 for a while, Market cap is huge
*YHOO Jan06 report disappointing

Big Dividends
*HSVLY

S&P 500 Index funds
*IVV (ex-dividend a few days after SPY), exploit the differences from SPY?
*SPY (ex-dividend 3rd Friday Dec, Mar, June, Sept)

Schadenfreuden stocks (look it up)
*MSO (Martha Stewart)
*SUNW (Sun Microsystems)

RAMBUS -- What goes up must go down? Or maybe up some more...

RAMBUS (RMBS) has merely doubled in the last month--on nothing more than news. A design win here (AMD) , a favorable lawsuit ruling there, an analyst's upgrade with a $936M in revenue upside ($157M actual in 2005). The earnings announcement yesterday was a yawner-- 9 cents a share instead of the one analyst's estimate of 8 cents. The stock did nothing on that news. So with a PE ratio of 117 (compared to Google's stogy 96) what should we look for on this stock?
I'm betting that it will not just stay stuck at 34 like it is right now. I sold 1000 shr short (at 34.43) and bought 12 Feb $25 Calls (at $1043 apiece). The delta right now on this combination is 1 -- at this price any change in the price of the stock will cause offsetting changes in the shorted stock and the call. However--if there is a reasonably big move (a couple of points) things get interesting. On the upside the delta on the calls will move from .89 towards 1 and the position moves into the black. On the downside the value of the options drop, but at a decellerating rate as the delta of the options drops. The profit /loss Shorted stock of course moves dollar per dollar with the stock. Right now I am wondering if I should set up a standing order with my account to close out the position if the stock moves sharply in one day (as it did the day I opened this position). One other comment, the volatility of the call options dropped significantly after the earning report--from around 100 to 90. Not surprisingly since there is less uncertainty about the stock. This might be a behaviour to exploit-if you are short on the options, not long like I am now.