I guess i can answer my own question. Since when you SELL an option you have to own the shares. If you sell an option and I exercise it, the next day it is taken out of your account and put into my account. An you would get the amount of the strike price at which you sold the option at (plus you made the premium on the initial sale of the option)
I am guessing since it is a sale already and all you are doing is exchanging hands then there is no volume added to the stock volume, right?
Doc.... I don't have the definitive answer and I have no desire to delve into it, however, IMO (if this indeed is a dividend play), They are either 1) playing some sort of arbitrage with the "mark-down" of the stock on ex-day or 2) they are taking "possession" of shorted shares for a small amount of time and capturing an "in-lieu-of" dividend from the shorted shares.