just thought up an interesting strategy to hedge your UCAD shares coming in the recent dividend...
I was thinking to myself, what will happen to the price of UCAD as all these new shares hit the market? Well, most likely as we move closer to the restriction date and the UCAD shares become free trading the pps of UCAD should fall...
Now wouldn't it make sense to short UCAD knowing you'll be able to cover the position with the dividend shares if it becomes necessary. You are simply using your future UCAD shares to hedge your UCAD short.
IF UCAD moves down, like it should, you can cover the short out of pocket netting the difference and hedging the loss on your dividend shares
IF UCAD moves up, then you can use your dividend shares to cover the short at any price and net the short balance. Even if the stock were to go to $100 a share you would simply sell your dividend shares at $100 to cover your short and net out the initial credit from the short. This would be the same as receiving the UCAD dividend shares at the price you shorted them at.
IF you are worried about price fluctuations in UCAD I would consider this an interesting strategy. IF the price moves up or down you'll still receive the present value of the UCAD shares at the price you shorted them at. Of course, there are problems; not sure if there are UCAD shares to short, and if the price does move and you receive a call on those shares you will be forced to cover at a price that may not be beneficial to you.
Any thoughts on this strategy to protect your UCAD dividend from price fluctuations?
