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Strategies & Market Trends : Tech Stock Options
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To: HairBall who wrote (57556)11/16/1998 5:38:00 PM
From: Patrick Slevin  Read Replies (3) of 58727
 
<So exactly how does that work if you hold a short position through a dividend distribution>

What happens is, to use an example, XYZ Stock goes out Monday at 90 Bid 91 Offer and before the Tuesday Open it goes Ex-Dividend for $10.

So you owe $10.

But the specialist is supposed to compensate for that on the Tuesday Open. Everything else being equal.....no news of a buyout or some huge money coming into the stock on Tuesday with a pile of MOO buy orders...the specialist, acting in the capacity of maintaining a fair and orderly market, should open the stock 80 Bid by 81 Offer. So it's a wash. You made 10 on the drop but paid 10 in dividends.

<say that I am short a stock position. Dividend date is Nov 16th, ex-dividend Nov 17th. Dividend is in form of a distribution of shares in a new baby company>

I would have to look that one up to be certain, I took the Series 7 (Broker's license) many years ago but the logical answer appears always to be the correct one.

In my mind, the logical answer is you are short stock in two companies as of the date of the distribution. The "person" (whether it's an individual or an entity) that you borrowed the shares from gets the stock. The stock loaned to you so the new stock also moves to you and through you to whoever bought it from you.....so to speak. In essence it's transparent. In

Sorry if it seems I lost my train of thought here. Just had a long phone call....it was important.

Um.....I forget what I was going to say. The only real downside providing everything else stays the same is now you have to execute 2 trades to cover; so 2 commissions.

Sorry about losing track.
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