CB: When you do short the box, know that if you just want to close the "short the box" position, you don't need to close the buy side with a sell at the market and simultaneously close the short side with a buy at the market. Rather you should have your broker find a 3rd party market maker to take both sides of the trade for a couple of pennies difference. This is easy to do since it's a sure winner--no risk involved at all.
For example, let's say that you bought LSI at 35 and went short the box for the same amount of shares at 36. From there you just held on to your position. Now you want to close the position, but the bid/ask is 35/35 and 1/4. Instead of paying the 1/4 differential, just have a 3rd party market maker close it at say 35.00 and 35.02. Since he is on both sides of the trade, He will be glad to do it. If you are trading 5000 shares, he makes $100.00 in 2 minutes--still nice wages for the average American.
The other thing to know about shorting the box is that when you are short the box, you still maintain 90% of your buying power. So, here is the beauty of that. Let's say you are short the box $200,000 worth of stock. That allows you to be short the box another $180,000 worth of stock, which in turn allows you to be short the box another $162,000 worth of stock, which in turn allows you to be short the box another $145,000 worth of stock, which in turn allows you to be short the box another $131,220 worth of stock. This totals about $810,000 worth of highly leveraged stock. What's the advantage of doing this.
Easy. As you know, when a market drops, it really drops. This happens about 15 times a year. What once does is sell all of the positions in these stocks as the market is dropping. The potential for enormous single day profits is huge. The key is to cover within the day because you will have a call from your broker to cover your positions at the end of the next market day. But usually, this is only a two hour phenomenon anyway.
Of course the risks associated with this strategy are enormous, and if you fail you could be working at the 7-11 with K The Investor. |
