Shorts, Pay The Dividend

Quote from calibertrader:

I recently had a discussion with several traders, and none of them knew, that if you're short a stock, and the stock pays a dividend, part of your costs to be in the short position is to pay the dividend to the person you shorted the stock too. So the dividend payments, get subtracted from your total return.
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caliber,

Aren't you at a professional firm? AFAIK, this is covered in the Series 7 test...

nitro
 
This rule is one of the most common worlwide. Applies in all exchanges I know of, including those who allow short positions without a lender for the actual stock.

Figured this out while I was dumb and trying to get the dividend on an European stock hedged with its ADR. Did not work
:D

OHLC
 
Quote from OHLC:

This rule is one of the most common worlwide. Applies in all exchanges I know of, including those who allow short positions without a lender for the actual stock.

Figured this out while I was dumb and trying to get the dividend on an European stock hedged with its ADR. Did not work
:D

OHLC
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How long did that take you to figure out ...
 
The time to get my SRD report...

More accurately : I realized this when I received a SRD report
listing some higher than expected fees on a stock I was short on, and understood then that hedging the original with the adr to get the div would not work.
I was a newbie at this time...


OHLC
 
BTW, the idea was not so stupid, since, on some exchanges, the short is not a sale of borrowed equity, but the sale of a synthetic contract ending at calendar's month end. The cost of carry is billed separately and autocovering, long + syn short, for example, is explicitly prohibited, which is sufficient to forbid getting the divs without risk on a single exchange.


OHLC
 
Quote from OHLC:

BTW, the idea was not so stupid, since, on some exchanges, the short is not a sale of borrowed equity, but the sale of a synthetic contract ending at calendar's month end. The cost of carry is billed separately and autocovering, long + syn short, for example, is explicitly prohibited, which is sufficient to forbid getting the divs without risk on a single exchange.


OHLC
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I did not know that ...
 
Quote from nitro:


caliber,

Aren't you at a professional firm? AFAIK, this is covered in the Series 7 test...

nitro
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I didn't say I didn't know it, I was surprised by how many didn't know the rule. So I figured this would be a good thread for those who didn't know the rule but would never admit to it.
 
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