3

Reference the log/journal entries below... I'm trying to follow the accounting trail for the following scenario.

10/04/16  20:36 Sold 5 SPY 12/30/16 220 Call @2.52   $1,255.41 
12/16/16  03:17 OPT ASSIGNMNT (SPY 12/0/6 220 Call)  $-   
12/16/16  03:17 Sold 500 SPY @ 220                   $109,995.90 
12/16/16  03:36 Sold 500 SPY @ 220                   $(109,995.90)
12/16/16  03:36 Sold Short 500 SPY @ 220             $109,995.90 
12/16/16  15:51 Bought to Cover 500 SPY @ 225.70     $(112,850.65)
12/21/16  18:36 DIVIDEND SHORT SALE (SPY)            $(664.47)

The ex-div date for SPY was 12/16 (I'm sure this is part of why it was exercised/assigned on that date) and as such, because I'm short the stock on the ex-div date, I owe the dividends on those shares. This part makes perfect sense. What I'm trying to understand is where/who actually gets paid the dividend, or maybe I'm trying to figure out the exact settlement order of things. Since I bought-to-cover on the 16th also, I thought that one of the following two scenarios would be the case:

1) I was "both" short and long the stock on that date... meaning that I get paid the dividend from the shares I bought to cover (I'm long these shares) while at the same time owing the dividend to the counterparty who exercised the option (I'm short these shares).

2) because I was short but also bought to cover on the ex-div date, at close on that day I was neither short nor long the shares (i.e. a net zero position), and as such I have no participation in the dividend.

4

I would suggest the following rationale :

  • You are not entitled to receive the dividend for your long position because people who buy on the ex-dividend date are not entitled to receive the dividend.
  • You are required to pay the dividend on our short position because the position resulting from the exercise of your short call options has been executed prior to the market opening - i.e., technically prior to SPY going ex-dividend. This is witnessed by the time stamp on the ledger postings shown on your account - i.e. at 3AM. So, technically, you held the short position at the time it went ex-dividend, with no offsetting long position.

This appears to be a most unsatisfactory state of affairs, however, you can bet that this is how things are handled.

As to who receives the dividend you have payed, this will be whoever the counter-party (or counter-parties) are that were assigned the exercise.

EDIT

Looking at the Dec16 SPY options, we see that the expiry date is 23 Dec. Therefore, your options have been exercised prior to expiry. The 3AM time stamp is probably due to the "overnight batch processing" of your brokers computer system. The party exercising the options will have chosen to exercise on the day prior to ex-dividend in order to receive the dividends.

  • Ah. The 3am part not actually being "the same day" is what threw me. – ljwobker Dec 30 '16 at 18:07
  • @ljwobker Ya, it's a bit of a stinker! These sorts of experiences do leave a sour taste in the mouth. – Nick R Dec 30 '16 at 18:17

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