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Re: MaryMary158 post# 2429

Monday, 08/19/2019 3:44:37 PM

Monday, August 19, 2019 3:44:37 PM

Post# of 3517
Here is a short explanation. Someone writes an option which commits to buy or sell a number of shares up to an expiration date at a set price. Someone else buys the option with the idea that in the future they will want to exercise the option (as in force the other guy to sell or buy), but they don't have to exercise it if it turns out not to be beneficial. The writer of the option does not have to borrow anything, or otherwise supply anything up front. They just have to maintain enough equity in their account to be able to cover their end of the transaction if it does get exercised. On the other hand, a short seller actually borrows someone else's shares and then resells them, hoping that they can buy back the shares in the future at a lower price and then return them to the original owner. The short seller has to pay interest on their borrowing, and they have to maintain enough equity in their account to be able to buy back the shares at any time. When you lend out your shares you lose your ability to vote. With regard to dividends the lender does not receive them from the company, but the borrower has to make them up to the lender. This leads us to the discussion of the 10% digital shares dividend. The borrower won't receive it, because he or she has sold their shares to someone else. So the borrower (i.e., the short seller) would seem to have to acquire some digital shares to deliver to the lending party. If it happens that way it will be very interesting, but it may not, as the guy who wrote the recent negative piece on Seeking Alpha suggested that there could simply be a cash substitution. ... not such a short explanation after all.
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