Question

ABC stock has just closed at $70.50. A customer has an open order on the Specialist's book (DMM's book) to sell short 100 shares of ABC at 70 Stop. ABC stock goes ex dividend $.55. The order on the Specialist's/DMM's book the next morning will be:
A. Sell short 100 ABC at 69.45 Stop
B. Sell short 100 ABC at 69.50 Stop
C. Sell short 100 ABC at 69.55 Stop
D. Sell short 100 ABC at 70.00 Stop

Answer 1

Answer:

A) Sell short 100 ABC at 69.45 Stop

Explanation:

When an order is placed below the market (OBLOSS - Open Buy Limits Open Sell Stops) it will be adjusted on the specialist's book for distributions on ex date. This open sell stop order = $70 - $0.55 (dividend) = $69.45

So the adjusted order will be: Sell short 100 ABC at 69.45 stop.