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Strategies & Market Trends : Stock Mania ! - Mutual Funds that can short. -- Ignore unavailable to you. Want to Upgrade?

To: kahunabear who wrote (32)	5/1/1998 8:57:00 PM
From: kahunabear	Respond to of 129

All, Here's an article on the short-short rule that was dropped to make these types of funds more viable. sddt.com WS

To: kahunabear who wrote (32)	5/2/1998 11:00:00 AM
From: Knighty Tin	Respond to of 129

WS, The Short-Short Rule was the worst thing in the world for performance for anyone who isn't a buy and hold type. The basic rule, which went into effect in the 1940s or 30s, before I was around to gripe about it -g-, went like this: "No more than 30 pct. of the gross income of a registered investment company can be derived from capital gains on positions held less than 90 days." Now, this doesn't sound so bad and I don't think the writers planned it to be so bad. But the key word is "gross." Let me explain. You have a gain of $1 million dollars on a long call you have held for 60 days. You also have a loss of $500,000 on a long put you have held for a similar amount of time. In fact, let's say you bought a straddle and that these positions are sort of wed together. You sell both. Now, we all know that you made half a million bucks. But, in calculation of "gross income," you cannot deduct the losses from the gains. So, for short short rule calculation purposes, you have a gain of $1 million. Obviously, short short was designed to prevent churning. But it is obvious that it is prejudicial against any type of hedged trade. Continued in next note.