Related posts: >> AOL Share Price Being Erroneously Quoted On Ex-Dividend Day — Dec. 3, 2012.
>>Special Dividend Extravaganza This Coming Week — Dec. 1, 2012.
Click to read the article.
So, AOL today provided an object lesson in what happens to a stock’s share price on the ex-dividend day. To be honest, I wasn’t sure what would happen in the case of special dividends, as opposed to regular dividends. Well it appears that the stock price WILL go down with special dividends too.
So that begs the question: how can you exploit that drop? An obvious answer would be to sell the stock short ahead of the ex-div and then settle up the ‘short’ after the dividend is paid. Yes, it sounds too good to be true — and it is exactly that. I called up Fidelity and asked. I was amused that the initial rep. that I spoke to was not sure of the answer. He had to check with the ‘back room’. The answer is that it does not work. Yes, the principles of selling short will apply. Yes, you can settle the ‘short’ at the ex-div price, BUT here is the catch. You OWE the dividend to the ‘firm’, because you were just borrowing the stock. So, the ‘short’ based purely on the price drop due to the dividend will not work. Just wanted to share that with you, in case you too were thinking of it.
Related post: >>Special Dividend Extravaganza This Coming Week — Dec. 1, 2012.
I captured this from ‘Marketwatch’ a few minutes ago. Check out the highlighted fields.
So having compiled the special dividend chart last Friday I was acutely aware that today was the ex-dividend date for AOL. My son had also called up with an alternate approach that he is considering in terms of how to play these special dividends.
So, I happened to check the AOL quote to see how it was fairing. I saw the red arrow and the 13% down. But, that didn’t seem right judging from the graph to the right! That shows fluctuations in today’s price with the GRAY bar indicating the ‘open price’; i.e., $32.48. AOL had actually gone up.
I made a few phone calls. It appears that the stock quoting systems are getting their knickers in a twist because of the pending special dividend.
So this is just a head’s up. Check all quotes you see over the next couple of weeks.