There is quite a bit of information on the various ins/out on shorting
stocks right here on SI. Shorting against the box is just one of them.
Now, the tax aspect of shorting against the box is only a small old
reason people did it. That part of the strategy has been altered.
But, there are far better reasons to employ this strategy to save
your profit gains in a stock. It is a fact of life the serious money
uses shorting to make a fortune!
Subject 15252
To: +KZAP (106 )
From: +TraderGreg Sunday, Jan 10 1999 2:43PM ET
Reply # of 173
Just one question. If the broker shorted his shares rather than sell
his shares, why didn't he just cover with his long position. He would
of course take a loss, but he would still have the original revenue
from the short sale.
Example: 2000 shares bought at 10, stock falls to $9.70, he wants to
bail out taking the .30 loss on 2000 shares or a $600 loss.
Later, he discovers that the stock was not sold but rather shorted.
This is the same as shorting against the box. You are long a stock,
you short it, thereby locking in the gain or loss at that moment. If
the stock goes to the stratosphere, you cry, but you still can cover
with your long position. The net difference is still that 30 cent a
share differential.
Box shorting is usually done by people who, if they simply sold the
stock, would have tax implications. By shorting against the box you
create two open positions, neither with immediate tax liability. If
the stock tanks, you might want to buy to cover, yet still hold the
original long shares OR you may still just cover with the long.
Seems this guy left out some additional info. Perhaps his broker
shorted more shares than he owned long?
TG
|
