If prices of STOCK generally fall on the date of the ex-date of a dividend why d

If prices of STOCK generally fall on the date of the ex-date of a dividend why don%26#039;t people just short sell? That day? Since it falls the price of the dividend.

Best Answer

(1) they would be responsible for the dividend on the borrowed short shares, since the person they borrowed the shares from still expects their dividend.

(2) the commission and spread may be bigger than the dividend.

(3) %26quot;generally%26quot; is a big word. there are other factors that affect the stock price. If there is a big news flash that day or evening, they would be responsible for a potentially large loss, in addition to the above costs.

(It%26#039;s a bad idea.)

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Other Answers (4)

When a company is going X-div, if more difficult to borrow the stock, which will prohibit the short sale.

The profit potential is not that great and the risk is greater than the reward.

Yes the price of the stock is reduced at the opening by the amount of the dividend, but this doesnot mean that the market price will stay lower, it could, and in most cases, increase or at least move up to cover the dividend,

If you could short the day before X-date, your liable for the dividend, so it more difficult to make any profit.

Nice try, but you%26#039;ll loose 99% of the time, and they are very bad odds. industry experience
Where did you get the idea that stocks generally fall in price on the ex-date? Do you have data that supports your opinion? Because plenty of stocks go up when dividends are declared--it%26#039;s a sign of a healthy company.

Plenty of people short stocks when they think the price will fall. That%26#039;s the beauty of the market. You can buy a put, sell a call, there are all kinds of ways to make money when you are bearish. Actually, the most action you will see like that is right before quarterly earnings reports, generally. experience
Because the shorting person becomes responsible for paying the dividend.

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