short dividends

Discussion in 'Trading' started by waterboy, Mar 21, 2006.

  1. waterboy

    waterboy

    i think i know the answer,
    but i'll ask it anyway,
    since i don't

    do you pay dividends on a short position?

    it would be nice,
    if you could take advantage of the "drop" in the stock price
    when the dividend is paid out

    thanks
    waterboy
     
  2. yes. if you are short a stock you must pay the dividend.
     
  3. So does your broker just debit it from your account then?
     
  4. FDG---(Fording Canadian Coal Trust) (14% yield)Would of been a great short on Friday close,it's Ex-Div day was Mon and the day after it got downgraded....

    It fell over 10% and the Div was only 3.4%

    I bought a nice chunk at 36.99 today......
     
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  5. alanm

    alanm

    Yes, you get debited the dividend on the same day as everyone else gets paid the dividend. I don't like being short into X-day. A lot of stocks seem to "forget" part of the expected drop from the dividend unless it was a large dividend that was a major catalyst in people owning the stock.

    Can someone who knows mention where you're supposed to put these on your taxes, assuming you're a trader with no long-term qualified dividends? I think I've just lumped them in with interest expense in the past, since it all flows through to the same bottom line anyway.
     
  6. According to Robert Green, who is citing IRS Publication 550, dividends paid to the owner on a short open less than 46 days is considered an adjustment to your cost basis on the position. If the short is open 46 days or longer then it's considered an interest expense.
     
  7. alanm

    alanm

    Thanks.!