Is shorting the box legit?

Discussion in 'Trading' started by kmiklas, May 3, 2021.

  1. kmiklas

    kmiklas

    I know that shorting against the box has been restricted to force taxes to be paid, but is it still legit to use it to protect capital gains without closing a position?

    Are they going to lock me up and throw away the key?
     
  2. BMK

    BMK

    The original meaning of short against the box was when someone executes an order to sell short a stock that he actually owns, but is not holding in the same account where the short sale occurs. The box referred to the idea that you could keep the stock certificate in a safe deposit box while selling it short in your retail brokerage account.

    Shorting against the box is not illegal. But no one has stock certificates anymore.

    How exactly do you plan to do it? Long in one account and short in a different account at a different broker?

    What exactly do you hope to achieve? Can you provide a concrete example of what you plan to do, with numbers, including your cost basis?

    BMK
     
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  3. zdreg

    zdreg

     
  4. kmiklas

    kmiklas

    Well, to be totally transparent, I'm not actually planning on shorting against the box. I'm looking for insight on tapering of the Fed QA program.

    I'm sure you know that hundreds of billions of dollars is being poured into the markets every month. This is both a juggernaut and a behemoth--it is the 800lb gorilla in today's market; the elephant in the room, (insert idiom/euphemism here), but it can't last forever. The laws of economics are bubbling underneath all this: (hyper)inflation, stagnation, deflation, etc. are all risks. For every action, there is an equal and opposite reaction--and there will be a big reaction to all this liquidity injection.

    Those in the know will gently trickle their portfolio adjustments months before "last call," and have their positions in place long before the actual announcement at the FOMC meeting. I'm looking for indicators of this trickle, a "canary in the mine," and thinking that short interest may well prove to be one.

    To spell it out, if I see an uptick in the short interest on a target market sector/equity, this indicates that the hawks will soon take flight. The idea being that companies are protecting their capital gains investment without actually selling, which might cause a market disruption. For example, if see a steady uptick in short interest in Q1 2022, the probability of a tapering announcement at the Sep 2022 FOMC meeting increases.

    I'm assembling a "Canary Indicator" for my own use: a basket of ideas that together form one aggregate indictor that the Fed is gearing up, the hawks are stretching their wings, and it's time to make some moves.

    RIP free market.
     
    Last edited: May 3, 2021
  5. ajacobson

    ajacobson

    Read up on the treatment of a Constructive Sale.
     
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  6. Fain

    Fain

    This occurs alot and physical Certs are still a thing although less common. I short stocks ahead of lock-up period expirations. Short 100K shares in youe brokerage account before re-sale restrictions expire. Deposit 100k shares in certificate form/or DRS to the same broker. . . You cover the short position with the cert deposit.
     
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  7. Eurodollar curve will tell that.

     
  8. kmiklas

    kmiklas

    Kindly explain. How will the eurodollar curve tell when tapering will begin?
     
  9. You can derive a curve from eurodollar contracts (and also swap rates,...) . It reflects market expectation of tapering among others.

     
    Last edited: May 7, 2021
  10. destriero

    destriero


    You short the stock via the synthetic (short call, long put, same strike) in the next calendar year and then unwind it in the new year.
     
    #10     May 7, 2021
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