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Example Scenario: I short 100 shares of company XYZ. Incidentally, I also own 100 shares of XYZ. The price of XYZ goes down and I need to cover my short sale.

Question: Can I cover using the 100 shares of XYZ that I already own, or do I need to explicitly "buy to cover", and purchase from my broker's existing inventory? If the former is true, how do I initiate it?

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1 Answer 1

up vote 5 down vote accepted

Yes, you call the broker and tell him to use those shares to deliver to the short position.

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Thanks @JoeTaxpayer. Do you have any source for this information? –  rs79 Feb 22 '13 at 15:32
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Call your broker, and ask "can I cover my short with shares I own, either with you or that I'll transfer from another broker?" Forgive me, some questions are so simple, I'm not inclined to research for a citation. No one here is going to contradict my answer. (I mean this particular one, I don't claim infallibility) –  JoeTaxpayer Feb 22 '13 at 20:21
    
Out of curiosity, under what circumstances is this a good idea? I thought one usually sells short if one thinks a stock will go down. Why not then simply sell the shares outright (and potentially buy them back later at the lower price)? Is there a tax advantage? –  Rick Goldstein Feb 22 '13 at 20:36
    
@RickGoldstein - In my case, years ago, I was buying shares of stock through my company plan. The purchase plan was a 15% discount from the lower of the two dates' price. Somewhere in the 4th month, the stock was high enough, I was happy to sell. I sold short, and delivered those shares when they hit my account. Not sure what OP's strategy is. –  JoeTaxpayer Feb 22 '13 at 23:37

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