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To: Robert Douglas who wrote (69270)	10/5/1998 3:37:00 PM
From: Jim Patterson	Respond to of 176387

RE: Assuming that you cover your short by year's end and keep your long shares, what are the ramifications on the "capital gains clock". In other word do you now have to hold it for another 18 months to get long-term gains treatment? Do you know if this has been IRS tested yet? Please consult a tax lawyer, as I am not 100% certain on this. But I am fairly sure that the box sale will create a capital gain situation as far as the IRS is concerned. A few years ago, they changed the rules to make it very difficult to use the money from stock that you have very large gains on. This change in the box sale rule is in there, I think. Jim

To: Robert Douglas who wrote (69270)	10/5/1998 5:04:00 PM
From: SecularBull	Read Replies (1) \| Respond to of 176387

Robert, in this strategy, I never sold my shares. I sold someone else's, and used my shares as collateral to cover the short. The taxes assessed to me will occur if I buy back the shorted stock at a discount to what I shorted it for. For instance, let's say I shorted 10,000 shares at $60. The gross proceeds of the sale are $600,000. If I close out that short at $50, then I have to spend $500,000 to do so. I pocket the difference of $100,000, but I have to pay taxes on that at current income rates. In its purest form, my bet is that the stock will either trade above $66 (Jan 55 Call premium of $11 + $55 call strike price)or trade below $49 ($60 short price - $11 call premium) on 12/31/98. If the stock is trading between $66 and $49 on 12/31, I lose some money depending on exactly where (since the option will have value as long as the stock is above $55. The closer it is to $66 the less I lose). I would lose the most if the price of the stock was $55. While I'd make $5 per share on the short, I'd lose the premium of $11 on the call for an overall loss of $6 per share. The beauty of this strategy is that I have 100% protection from the stock tanking below $49 while the short is open, but I'm hedged against the stock soaring with the calls. I also have the flexibility of closing out the short on a dip, and keeping or selling the calls. As for IRS testing, it's my understanding that the law only requires you to close the position out by 12/31. Regards, LoD