Concurrent long and short same security?

8

8hcap

I was just pondering some potential hedging strategies, and wondered if one can hold the same security long and short in the same account at the same time. I realize that this doesn't make a whole lot of sense on the surface, but I'm really just curious if this can be done or if there are some restrictions in doing this.

I have used options for hedging, (puts with a long position for example) but was wondering about just playing the actual security.

Thanks for inputs.
 
Why wouldnt you simply open a second account if this was your intention of hedging one time frame against the other by simultaneously having exposure to the same security...Otherwise, dont you think it is highly probable that the software your brokerage firm is using will not make the distinction between two simultaneously open positions on two sides of the markets?
 
Clearly being long and short in the same account is a net position of 0 or flat, which is what the broker would show you as. One would be the entry and one would be the exit.

As far as I know in futures until recently, however, being long and short in separate accounts was breaking the rules. Now it is possible but usually a document has to be signed disclosing it is for the purpose of building a trading record for a system.

Your compliance department will know the most though.
 
You can open two accounts, be long in one and short in the other account. This is old trick to circumvent uptick rule. Just exit your long if you want to short without uptick. It's illegal, btw.

Don't know what strategies you are looking at, but consider options to hedge other side of your position. Or use correlated securities ala stat arb techniques.
 
You can purchase Call Options and Put Options on the same stock

With Single Stock Futures (SSF), which only started trading yesterday, you can be long and short the same stock in the same account.

There are two ways to do this:
1. You can buy a contract with one expiration date, and sell a contract on the same stock but with a different expiration date.

2. You can buy a contract on one exchange, and sell an identical contract (same expiration date) on the other exchange. There are only two exchanges trading SSF, and the contracts that they trade are not interchangeable between the two exchanges. It's because they aren't interchangeable that you can be long and short an identical contract in the same account.

The first method you can use on any SSF.

For the second method, it has to be a stock whose SSF trades on both exchanges. Since SSF have only just started trading, there's a very small list of stocks that have SSF, and those that trade on both exchanges are an even smaller list .

As of right now, I believe the stocks that have SSF traded on both exhanges are: General Electric, General Motors, Exxon, Microsoft, and Oracle. More will be added as SSF trading increases.

The margin rates for SSF is generally 20% (at Interactive Brokers), but if you are both long and short SSF on the same stock, the margin requirement drops to 5%
 
I do the majority of my trades intraday, after support/resistance and stochs have been set up. I try to get in on intraday trend reversal, make a little bit and then get out. All positions are closed by end of day.

Because of this, I have no exposure to market open trends. What I was thinking (really just thinking at this point) is if I want to try a trade at start of day, to hedge that position with a smaller position going the other way. I.e., long 1000 shares with a short position of say, 250 shares. If the trade goes my way, close out the short and let the long ride. If the trend is down, close the long and let the short ride.

From what you wrote, it sound like this may be illegal?

I realize I could do the same with in the money options, but was just looking at alternatives.

Thanks, everyone else for your thoughts.
 
8hcap,

I have been working on this most of the year with some decent results. One thing that I do in this market is use ETFs to get long and short some individual names, plus some ETFs.

The theory being, at least currently that if something bad happens either globally or company specific I don't want to hold a stock that opens down 50%. An index, most likely will not drop 50% in one day.

Now where this can be painful, and I tend to keep things open longer than many on ET, is on rally days, where your shorts will rally much more than their underlying indexes.

As a simple example, I am long IWO, and some income funds while being short several individual stocks. This allows me to ride swings a little longer. In the account I am net short, as the rally seemed like a good time to lighten up.

If we were in a bull market, I would flip this strategy.
 
Wondering, what possible reason would there be to have a long AND short in SSF's on the same stock? Since there is no uptick rule, you don't need the long for that. Maybe the margin should be 5% and a free session with a headshrinker.
 
Quote from stock777:

Wondering, what possible reason would there be to have a long AND short in SSF's on the same stock? Since there is no uptick rule, you don't need the long for that. Maybe the margin should be 5% and a free session with a headshrinker.
More...

SSF on MSFT is trading .15 cents under-valued to MSFT stock. You go long the SSF and short the stock. You have just locked a 15 cent differential between the two.

I'll leave it up to you to find out how you could profit from this "irregularity." (I can't do it, I don't have enough money to arb).

Plus, there are two exchanges trading SSF's -- do you think they will ALWAYS be equal. If you can program it, you could find some discrepancy between two SSF's, the stock and a multitude of options.

Creativity pays off -- if you have the money to be creative with.
 
I guess if you really can't tell which way the market is going to start, but expect it to flop around, you might want to be long and short, so whichever way it starts out you can take a profit when you see it changing direction, or cut your loss if you see a trend developing.

It's kind of the ultimate hedge, you're assured of not losing anything no matter which way it goes (until you sell one side)

It might also be useful to set up a position like this before market's close to be able to beat the wider spreads at the next day's open and when there's uncertainty about how events overnight will affect the morning's direction
 
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