JS, It was a rule for mutual funds that existed from the start of the SEC until essentially eliminated in the past 5 years. Basically, if you managed a fund, no more than 30% of the fund's GROSS income could be derived from positions held less than 90 days. The penalties could be similar to a death penalty for the fund and/or the management co., so you didn't want to break the rule. The problem for me was that I ran options money and many, many times, the best time to exit for the highest profit was in less than 90 days. Also, the key word was gross profits. If I bought a stock and sold an at the money call for $4, and the stock went up $20, I could sell the stock for a $20 profit and buy back the call at $20 for a $16 loss, netting $4. However, in calculating the short short portion, there was no offset, so the $20 on the stock goes right into the gross income under short short.
It was a killer. I calculated that short short cost my shareholders about 5% in 1985 and another 3% in 1986. That is too much and I fought like crazy to get it repealed. The Congress finally allowed for a matching of losses to gains, which effectively eliminates the problem. |
