That happened to me once. Here's the story. It was no big deal. First, the company I shorted pays a regular quarterly dividend so I know I had that exposure when I opened the short. The stock was trading at 171.50, and pays a .50 share every quarter. It is important to note exactly when you sell shares short. If the stock is short on the record date, a short will owe the dividend to their broker.
So I opened a 500 share short on SWK@, an Apple chip supplier. I also own a legacy long position in over 2000 share I acquired in 2015. I pulled in 85,745.70 and simultaneously bought 5 one month out 180 strike calls contracts for upside protection using the proceeds of the short to pay for the calls costing me 2.65 a contract. Net net, my short proceeds were 84425.00. By the way, that's the right way to play a short in order not to get a gamma squeeze.
So yes, I was responsible for the dividend as I was short as of the record date. I was aware of that. So my dividend exposure that was released from my short proceeds, 500 @ .50, $250.00 which came out of my 84k proceeds leaving me with 84,175, or a breakeven basis of 168.35. Best part of all of this, brokers manage the entire process. I only had to manage my trade.
Long story short, SWK@ has a pattern of trending lower ex dividend even in excess of the ex-dividend trading pattern. Still made money as I was able to close my short at 163.70 and make a cool 4,650 for about a 8 business day holding period. Didn't need quite a month of upside protection the 180 call provided me and still made some money on the long calls.
See, not so bad. Here's a caveat that you may be thinking is hard for shorty to manage, and that is that the company cannot simply declare and pay a dividend it does not have the money to pay. And it certainly isn't the short positions responsibility to generate if the company in question doesn't have the cash to be able to declare and pay a dividend.
