Hello friends. I have some questions on short sale against the box.
Why would one give away the dividends earned in a long position to a dealer in this strategy?
This strategy is more of a delayed outright sale. Is this strategy only pursued in markets which lack a derivatives market?
The dealer owns the borrowed shares and is entitled to the dividends.
Similarly, the party to whom you sell the borrowed shares owns the shares, and so is entitled to the dividends.
Not really, because:
That’s a good question. I haven’t done any of these in practice, so I cannot speak to which approach is more common under differing circumstances. I’d be interested in hearing from someone with real-world experience in this area.
Not all stocks pay dividends… Actually, I think few stocks pay dividends in the universe of stocks.
The book mentions that one would sell their own shares while paying back to the dealer. Found that a bit weird.
thank you! Was just wondering someone with an access to derivatives wouldn’t want to get into this. You lose dividends and then have to sell off your holdings at some point.
I don’t recall the curriculum mentioning selling one’s own shares to repay the dealer. Where, exactly did you read that?
The curriculum does say that this is less costly than involving a derivatives dealer, so even if there’s a strong derivatives market, this may be a common approach simply to save money.
My guess is the proportions would be much higher in developed vs developing markets. Gotta consider all possibilities, unless one’s suffering from a representativeness bias I.e.
Hmm I will look it up.