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Initiate Short Burn sequence

cpa

Active Member
May 17, 2014
3,219
4,284
Central Valley
For all your experts on shorting stocks, I have a some questions. I have not, nor do I intend to short any security, ever. I understand selling puts and calls, however. I just want to know how the system works or could work.

Let's say Mr. X owns 2,000 shares of TSLA in a long position.

Could Mr. X then borrow 1,000 shares of TSLA and short those shares?

Could Mr. X use 1,000 of his long shares as collateral instead of the 102% cash on deposit with the escrow holder.

Could Mr. X then use the proceeds from the short sale and invest those funds elsewhere?

If TSLA goes up in value after his short sale, does the fact that his in-kind collateral cover his position thereby obviating his need to cover with more cash?

Can he use his long shares to close out his position if the price goes up?

Can he use some of the proceeds from the short sale to close out his position if the price goes down and keep the difference as profit?

I know these techniques can be used by farmers in the commodities markets, as they can deliver the commodity after harvest if the price goes the wrong way and still make a profit on their crop. But I am not knowledgeable about the securities markets.

Thanks to any and all who respond.
 

HankLloydRight

No Roads
Supporting Member
Jan 18, 2014
13,044
11,090
Connecticut
Yes, it's called "Shorting against the box".. Short Sell Against the Box

It's when you want to short a stock you own (say for a short term play), but don't want to close out your long position (say for a long term hold).

Can he use his long shares to close out his position if the price goes up?

Yes, in most cases, I believe.

Can he use some of the proceeds from the short sale to close out his position if the price goes down and keep the difference as profit?

Unless I don't understand your question, that's pretty much why people sell short. To profit on the buy-back and return of the borrowed shares at a lower price.
 

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