1

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?

1
  • IN General, do the "short sellers" have to pay the owner of the stock they "borrowed" ?
    – user28740
    May 7, 2015 at 5:54

2 Answers 2

6

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

4
  • Thanks @JoeTaxpayer. Do you have any source for this information?
    – rs79
    Feb 22, 2013 at 15:32
  • 2
    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) Feb 22, 2013 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? Feb 22, 2013 at 20:36
  • 1
    @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. Feb 22, 2013 at 23:37
2

Yes you can. This is known as a short selling against the box. In the old days, this was used to delay a taxable event. You could lock in a gain without triggering a taxable event. Any loss on one side of the box would be offset by a loss on the other side, and vice versa. However, the IRS clamped down on this, and you will realize the gain on your long position as soon as you go short on the other side. See http://www.investopedia.com/terms/s/sellagainstthebox.asp.

As to how to initiate the short cover, just transfer the long position to the same account as your short position and make sure your broker covers the short. Should be relatively easy.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .