Equity STRIPS ETF - is it possible?

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Walkure
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Equity STRIPS ETF - is it possible?

Post by Walkure »

Treasury bonds can be turned into STRIPS whereby the principal and coupon payments trade separately. Would it be possible to do the same with a pair of ETFs that hold swap contracts equal to the dividends and price action of a basket of stocks, that then trade independently? Probably results in some weird tax gymnastics, but that doesn't seem insurmountable.
Thesaints
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Re: Equity STRIPS ETF - is it possible?

Post by Thesaints »

Walkure wrote: Mon May 10, 2021 5:21 pm Treasury bonds can be turned into STRIPS whereby the principal and coupon payments trade separately. Would it be possible to do the same with a pair of ETFs that hold swap contracts equal to the dividends and price action of a basket of stocks, that then trade independently? Probably results in some weird tax gymnastics, but that doesn't seem insurmountable.
A deep-in-the-money call basically entitles the holder to just the price action.
If you only want the dividends, go long the stock and write that call.
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Walkure
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Re: Equity STRIPS ETF - is it possible?

Post by Walkure »

Thesaints wrote: Mon May 10, 2021 5:25 pm
Walkure wrote: Mon May 10, 2021 5:21 pm Treasury bonds can be turned into STRIPS whereby the principal and coupon payments trade separately. Would it be possible to do the same with a pair of ETFs that hold swap contracts equal to the dividends and price action of a basket of stocks, that then trade independently? Probably results in some weird tax gymnastics, but that doesn't seem insurmountable.
A deep-in-the-money call basically entitles the holder to just the price action.
If you only want the dividends, go long the stock and write that call.
You could, but that seems like a lot of work rolling options, especially if you're trying to diversify across hundreds of dividend paying stocks. Surely there must be a market for a set-and-forget product that does this automatically. In theory, the imperfect correlation between prices and yields would mean that holding both hypothetical ETFs and rebalancing could even produce a premium over simply going long the stock.
Thesaints
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Re: Equity STRIPS ETF - is it possible?

Post by Thesaints »

You can do it on SPY…

Not possible to gain by holding dividend flow separately. There would be a simple arbitrage available, if that were the case.
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vineviz
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Re: Equity STRIPS ETF - is it possible?

Post by vineviz »

Walkure wrote: Mon May 10, 2021 5:21 pm Treasury bonds can be turned into STRIPS whereby the principal and coupon payments trade separately. Would it be possible to do the same with a pair of ETFs that hold swap contracts equal to the dividends and price action of a basket of stocks, that then trade independently? Probably results in some weird tax gymnastics, but that doesn't seem insurmountable.
Dividend swaps exist, and until September the Reality Shares DIVS ETF (DIVY) was available as a way for retail investors to access that market.

https://www.businesswire.com/news/home/ ... -NYSE-DIVY
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Topic Author
Walkure
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Re: Equity STRIPS ETF - is it possible?

Post by Walkure »

vineviz wrote: Mon May 10, 2021 7:01 pm
Walkure wrote: Mon May 10, 2021 5:21 pm Treasury bonds can be turned into STRIPS whereby the principal and coupon payments trade separately. Would it be possible to do the same with a pair of ETFs that hold swap contracts equal to the dividends and price action of a basket of stocks, that then trade independently? Probably results in some weird tax gymnastics, but that doesn't seem insurmountable.
Dividend swaps exist, and until September the Reality Shares DIVS ETF (DIVY) was available as a way for retail investors to access that market.

https://www.businesswire.com/news/home/ ... -NYSE-DIVY
Fascinating, I had never heard of this fund.
mr_mac3
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Re: Equity STRIPS ETF - is it possible?

Post by mr_mac3 »

I think these dividend futures might be related to your question.

https://www.cmegroup.com/trading/equity ... tures.html
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