Shorting Against the Box

C

cocobop

I've done a search on this site for that term without much success. Is there is anyone out there with the answer to this question... Can someone legally own or control both a long and short position in the same stock? Is this an SEC regulation or is it or is it just at the broker's discretion. If you know of a link to a government site please post that URL.

Thanks for the answer in advance.

cocobop
 
I have been using this strategy for years. I typically trade volatile nasd big caps which i expect to make large price moves each day in both directions; and finally realizing that most of these price moves were just id noise and basically not predictable, instead of taking my loss i just reverse and go in other direction for profit. I have found that an extremely high % of trades are eventually profitable. Just need to use money management so as not to be wrong against a strong trend. Easy to do , brokers never balk at strategy, and margin is less since you are covered on both sides.
 
stkcowboy: Do I understand you correctly in that your broker allows you to have a long and a short position in the same stock at the same time in the same account? Anyway, I can't argue with your strategy, as long as the stock moves, you win! If it goes up a dime you make money on the long leg, if it goes down, you make money on the short leg. Have you thought about marketing your trading system via spam mail? Sounds like a great business idea.

cocobop: AFAIK it is illegal to circumvent the MORONIC uptick rule by selling a long position when you also have a short position in the same stock at that time. Of course, I don't think the SEC monitors all retail accounts at all times, so you could get away with it, but if you want to make money by breaking SEC laws, I would advise you to run a telecom company (preferably wireless) and steal billions instead of just a few bucks by cheating the uptick rule. Also, as you might know, bullets can provide you with a legal way to do just that.

On the other hand, I have heard that you are allowed to establish a short position in a stock that you own and keep those positions separate so that the long position does not lose its long term capital gains tax status. Go figure!
 
How can you "win either way" if your long is going down and your short is going up, or vice versa?? Daliddle's right - you're just paying commissions. Take one side of the trade, ride it if you're right, cut it loose or take the other side if you're wrong.

It seems like shorting against the box is a strategy used by people who aren't sure of the trend, and will wait for it to develop after getting in and then will cut loose the losing side.

Why not just wait for a trend to develop in the first place and pay 1 roundtrip commission??
 
Originally posted by Tech Analysis
How can you "win either way" if your long is going down and your short is going up, or vice versa?? Daliddle's right - you're just paying commissions. Take one side of the trade, ride it if you're right, cut it loose or take the other side if you're wrong.

It seems like shorting against the box is a strategy used by people who aren't sure of the trend, and will wait for it to develop after getting in and then will cut loose the losing side.

Why not just wait for a trend to develop in the first place and pay 1 roundtrip commission??
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I apologize if the irony in my first post in this thread was not expressed clearly enough. It's hard for me to do with typed words only...
 
shorting against the box is simply a straddle position done with stocks instead of options. the advantage of the "box" is no premiums and no time factor.
 
Originally posted by horseman
shorting against the box is simply a straddle position done with stocks instead of options. the advantage of the "box" is no premiums and no time factor.
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And exactly how do you profit from such a "straddle"?
 
The idea is you ride out a downturn without having to pay cap gains taxes on your long. Say you bought AOL years ago and are sitting on millions in cap gains. Rather than selling and paying the government, you short against the box and are hedged. The downside is you will owe short term gain on any short profit, assuming you cover within a year, so you are trading L-T rate for S-T. Just another example of how our odious tax system creates economic inefficiency.
 
AAA,

That was my thought on this. It used to be that if you had a gain in a stock that you could short against the position in december and then take it off in January thus deferring your taxes to the following year.

I looked it up, and this appears to be the rule. If you short against the box, the gain is reported in the year the short was put on. Unless you close the short leg in the following year and continue to hold the long for 60 days after closing the short.

Too bad every time people get a good idea our tax code closes the loop like a noose.
 
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