Short Sell Against the Box

Short Sell Against the Box

The act of short selling securities that you already own. This results in a neutral position where your gains in a stock are equal to the losses. For example, if you own 100 shares of ABC and you tell your broker to sell short 100 shares of ABC, you have shorted against the box. An alternative way to short selling against the box is to buy a put on your stock. This may or may not be less expensive than doing the short sale. Also known as "shorting against the box".

Notes:

The sole rationale for shorting against the box is to delay a taxable event. Let's say that you have a big gain on some shares of ABC. You think that ABC has reached its peak and you want to sell. However, the tax on the gain may leave you under-withheld for the year and hence subject to penalties. Perhaps next year you will make a lot less money and will thus be in a lower bracket and you would rather take the gain next year.

See also: Capital Gain, Hedge, Naked Shorting, Short, Short Selling