no, this is not about terminology. It is about a tax and broker abusive scheme that has been made illegal in most every developed jurisdiction. From a trading perspective it makes ZERO SENSE.
Please tell me the term for......
- Thread starter learner2007
- Start date
ok but even that made very little to no sense given the fact that borrowed shares could have been recalled at any point in time. Worse yet, you could have gotten notice that your shares are gonna get called and unless you act your broker will actually close the short for you and you will end up with sudden, unexpected exposure. Fact remains, this "scheme" was purely intended for abusive purposes either by brokers or for tax avoidance reasons which is precisely why SEC made such activity illegal.
this post alone shows that you do not understand the basic fact that this is nothing but a flat position where you later on enter on the long or short side, well not precisely, you just paid double commission.
Wow. So, you pick stocks like AAPL, with a tight spread, and buy and sell 1000 shares instantly, paying 1 cents each + $10 times 2 trades, or $30. You pick 10 or so stocks to do this with. Total cost $300. Then, whenever you have a realized gain elsewhere in your portfolio, in your core holdings, meaning you have cash in-hand, you Buy 1000 of one of the 10 flat stocks where the price has gone up, claiming this covers a losing short and using this "loss" to offset from your realized gain. Wow. Can't be legal. You must be right.
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On the institutional level borrow market is more negotiated. So you can go to fidelity (who never sells their stock) and borrow your shares from them and pay them a fee. Now you know you will always have the borrow available (but you are paying for it).
My understanding is that the IRS looks at economic risks to determine if you have a taxable position. And an economic flat position would create a constructive sale. Which is why collar strikes have to be very wide (to create some economic risk for the hedger).
But I think there were abuses and the practice has been eliminated. My information is a few years old.
What you still do not understand is that all I wanted to know was what you call it in the English language.
Please read the above sentence 10 times, and if you still do not understand it, call me in the morning.
I got that, but then why would you say "Thank you. But rather than a wash sale one use is simply to enter both sides at an important price level and then exit one position based on the following price movement."? Makes very little sense...but oh well, you can always open 2 different accounts and buy one asset in one account and sell the same asset in the other account if that makes you happy and makes you feel like a real "trader".
Foolish.
You may be looking for "shorting against the box". You would not be "flat".
I don't know why you lump my comments in with the others.
I know of funds who did this in 2010 when they knew they would ultimately short a particular stock (which I won't mention here). You put the box on and when you get the price to short, you take off the long to get the economic short exposure. Until then, you are paying the borrow costs. If you don't have the box, you may not be able to get borrow at the time you need it. So you are locking in borrow availability now.
Another economic reason to trade the box is to manage dividend withholding taxes especially in Europe.
Banks would hold boxes it to lock in borrow on their ADR desks.
Of course, these smart long short funds, European counterparties, and ADR desks are really only doing it be feel like "real traders."