Every trader who goes short knows that he is responsible to pay the dividends due if he happens to hold a short position through the dividend date. However here is another quirk of short trading which most traders may not be aware of- Consider the following trades I made back in August of 2000: 8/28/2000 sell 60 DIGX @ 83.875 8/30/2000 buy 60 DIGX @ 86.75 This short sale was covered two days later for a loss of 2.875/share. You would think my account would now be flat-right? Well guess again; It is now 7/31/2001, ALMOST 1 YEAR LATER! I open my account and low and behold I see the following: 7/31/2001 -11 WCOM @ 14.25 7/31/2001 debit $4.30 Yes that's correct I am short 11 shares WCOM. Where did this come from? I didn't short WCOM in any trade. It turns out WCOM bought out the company that owns DIGX and gave DIGX shareholders 0.18837 WCOM shares/DIGX share for owners of record on 9/1/2000 to be paid out 1 YEAR LATER. Since I was still short DIGX on 9/1/2000(settlement for the long trade wouldn't be till 9/05/2000) I have to cough up 60 x 0.18837=11.3022 shares of WCOM. (0.3022 would be in cash) The point of this is short trading is not simply the opposite of long trading. I might have gone on vacation for a month and not known those short shares were sitting there like a ticking time bomb. If any of you have had these kinds of quirks happen-let's hear from you- I hate these kinds of surprises.
Thanks for sharing that. To me that sounds like another reason why going flat before 4pm is a great idea