I finally understand why everyone was asking me if I have to pay a dividend.

Here’s how I now understand this scenario involving shorting and dividends.

Person A owns shares of company X

Person B borrows from Person A shares of company X and sells to Person C

Company X declares dividends but who does it give it to? Person A or Person C? (2 owners of the same shares.)

Let’s say the company gives it to Person A. Person B is on the hook to pay the dividend to Person C (in addition to giving back the shares to Person A).

Getting back to the Ultrashorts…

They have the characteristics of shorting but they are based on derivatives – swaps, futures like Seeking Alpha explained.

But I never shorted!

That’s what got me so confused. But thanks, for the question, Bob. This makes me aware. Shorting is probably something I’ll try in the future as well

I knew there was something I wasn’t comprehending because I just saw this way too many times. But no, I don’t have to pay someone else a dividend

I think it’s all in the terminology – perhaps it should be called distribution.

If you look on the Proshares website, the distribution is made up of dividends and short term and long term capital gains. According to Seeking Alpha, they accomplish these capital gains with futures and swaps.

Truth be told, I’m surprised about the comments I’ve received so far and also by reading on message boards. Why a dividend charge? Why do people believe they have to pay it back if you short it?

The bottom line is that the company declared a dividend, they are obligated to pay the shareholder of record.

Am I missing something here? Wouldn’t be the first time

Ahh, no secrets! Investing is just something I’m interested in. Although I know the generalities of politics, I wouldn’t be able to talk about the particulars of the U.S. debates!

I probably spend 1 hour a day reading the financial headlines and then I zero in on a topic to research later on. I usually write/research on the weekends or have drafts prepared to be word-smithed later – this takes me HOURS as I’m picky. There’s no way I can come up with something the night before unless it’s a short article. This one in particular didn’t take long at all to write, maybe 30 minutes. Just the facts

I read a lot of the Economist, Forbes and CNN.

I don’t watch much TV. I averaged about 2 hours a week with Heroes and Prison Break but they are on hiatus now so I watch even less now. Although I did watch American Gladiator last night

@ Paul

Thanks, Paul. I don’t know if it was in the plans as my brother is gloating but it reminds me of the dot com days where everything was going up. In days like these, it seems like it’s one bad report after the other and the mood is general pessimism. It was only a matter of time… And it seems as though I could have held on for more, but oh well. Can’t complain.