If a person sells uncovered calls and they get exercised the day before ex-dividend, although he will only be notified later of the assignment, he is obligated to pay for a "substitute payment" or "manufactured payment" or "dividend in lieu" equal to the amount of the dividend out of his own pocket. The exerciser of the calls reports this income on his 1099 for tax purposes which is taxed at a different rate than a real dividend. Here is my question: When the seller finds himself short the stock the next day and covers the short by buying real stock, does the status of the stock ownership of the exerciser of the calls then become "real stock" and the next dividend payment he gets from the company?
Your getting caught up in terms. It's really very simple. On the x-div date, the "owner" of long stock gets the dividend. Whatever tax treatment he's entitled to at that time, he'll get. If on that date, you're short stock, you owe the person you borrowed the stock from to sell it short, the dividend. Your Prime Broker will take care of the details. When the next dividend date arrives, your rights to the dividend or responsibility to pay it, are again determined on the next x-date. you position on another date is not important.
Let me clarify. When the seller buys real stock someone from the open market loses the real stock and hence the dividend. Who does the company pay the dividend to? Do they somehow line everything up with that initial guy who exercised the calls?
Let's assume the X-date is Monday August 22, 2011. Before the open, you get your positions that morning. That position determines who is short and long. Options exercise is same day. So, the next morning your position included previous days exercise assignment unless the broker dealer has to adjust your position from it. Stock from trading or exercise assignment is the same stock. Your referring to stock being "real" or something else. They are the same.