I only have one account and it registers as 2 seperate positions when I do it. If news pops up and reverses the direction, I have bought double hedge to make money on the reverse if I think it will run abit, like in a rally. When it peters, dump the hedge and Im further up making money on down again. You save all kinds of comisions and even if you close out the hedge a little too early, you still reduced losses compared to not doing it at all. Frankly I rarely enter or exit just right but practice makes perfect. Ooo, thats a nice tidbit runningbear mentions. Ill have to keep those tax implications in mind.
Shorting against the box only allows you to (1) sometimes sidestep the uptick rule and (2) take advantage of of the tax law if you hold one side of the trade long enough for it to qualify for long term capital gains, as you pointed out. If that was the reason for doing it in the OP's post then it would make sense. But that wasn't the reason he gave for doing it. Technically, you can only have one market position at a time. When you add up all the positions in all of your accounts, you're still going to find that your net position is going to be either zero, less than zero, or more than zero.... flat, long, or short.
So if no tax benefits currently exist with shorting against the box, this strategy is basically useless, correct? Wouldn't it make more sense to just sell the position?
Exactly! It has no legal tax benefits. You can't even short the stock in another account under US tax law without triggering a so-called "constructive sale" of the long position. Shorting against the box also carries some added risk if your broker demands that you return the borrowed shares. (it is rare, but it does happen.)
Why sell the position, if its a good position? Just snip out the short reversal with a in/out against the box. No need to put up with reversals when you can make even more money with one quick in out. Plus its more psychologically acceptable when taking profits. Your long may not be sitting in as much profit as you would like, but you like the profit of the short more so you take it and add another long. Same goes as it rises again. I find I take more profits when I got more to choose from. If stocks were just going in strait lines, then it doesnt work. But take a long and a short, one hour one trade is profitable, and another hour, the other is profitable. All thanks to volatility and being in a trading range. To leave and enter in the opposite direction, and then again to resume course, would require twice the commissions, twice as many times to screw up entry and exit, and gaps in profit as the stock moves without you. Its a waste and wears you out psycologically going back and forth as fast as you can. Today RIMM hit 60 and just hung around. At the end of the day, I expected it to break short as sellers took profit. It didnt exactly happen like that. It came down a little, and I dont know whats going to happen next. So I froze my short with a long. Now I can sleep this weekend. If Congress gridlocks and we go down monday, I'll take the down with no lose to my account till I cover the short. No doubt it will rise again, so the long will be much more profitable than from where I bought it near the short. Its the same thing as defering all of the short profits to be collected on the long side. And in this case, I am quite sure the long will pay off in spades. Oh yea, my broker explained that shorts can be called back since its a down market and margin use is low, but they said its very rare it happens. They say they give you 24hours to release shorts but by then shares are available so they rarely bother even making the call for them.
I think commissions would be the same... Buy long = commission Sell long = commission Sell short = commission Cover short = commission vs. Buy long = commission Sell short = commission Cover short = commission Sell long = commission Eventually it all works out to the same amount of commission, am I wrong?
Yes, if you are flipping between being net long and net short then this would be a good way to go -- I.e., if you hold 1000 RIMM long for the trend and want to flip to 1000 RIMM short for a temporary reversal, then SS 2000 RIMM is cost and time efficient. But it has no advantage for modulating between being long and neutral or between short and neutral. All shares are the same -- selling "borrowed" shares is no different than selling "your" shares. Moreover, if you do short against the box and then decide to exit your position entirely (e.g., to shift your trading to something else) then you need to do two transactions to close both the long and short positions both you can redeploy your capital elsewhere.
You are correct. If the goal is to go from long to neutral. But if you want to swing all the way from long to short, then using one big short sale has less commissions than a regular sale + a short sale (plus a covering buying and a long buy if you want to swing all the back form short to long again).