Can I short sell a stock if I am already long without having the position "covered"?

Question

I am long stock A currently. The stock pays 0.15 monthly dividends. I want to lock in the current price without releasing my long position and miss out on the dividends. Best way to do this is sell short position. In addition, it will pay a 0.75 December dividend. The stock usally falls by about 0.50 as a result. If I am able to be "long" and "short" at the same time, I will profit from the 0.75 dividend and the 0.50 (rough guess) price depreciation (as a result of the dividend). Is this a legitimate form of dividend arbitrage? If I hold a short position and a long position at same time, will I still receive the dividend?

Answer 1

Gregory means "short against the box" and at one time it was a widely used strategy empolyed for deferring taxable events. The advantages were eliminated with the revisions to the tax code in 1997 and it is seldom if ever empolyed today. It is correct that if you borrow stock and short it and stay long at the same time you will both receive and own a dividend, so there is no real advantage in doing this. You may want to consider buying puts against your position. These will allow you to insure against a decline in price and still receive your dividend. If the stock goes down you can excersize your option and sell the stock at the predetermined price thus locking in any gains. If the stock doesn't move your option will expire worthless. In the first case you sill lose you stock and thus any dividends, but lock in your gain. In the second case you will lose the amount of $ that you paid for the option. So make sure you're not paying more for the insuance (the option contract) that you are for the potential gain (the dividend income)

Good luck to you.

Answer 2

One of the safest was to short a stock is to "short inside the box."

Let's say you hold a seasonal stock. Historically it's been going up 25% a year, but during the summer it has historically fallen 13%. So you think you want to go long and short on the stock, but you don't know if this is the summer it's acctually going to go up. So you buy 500 shares long and short 500 shares. If this is the summer that the stock actually goes up 300% in one day, you still have the 500 shares long to cover your short. The most you will lose is the cost of the 500 shares plus all the fees. If it does it's historical thing, you can make out nicely. You can do this with more shares and thinner profits too.

The owner of the stock holds the dividend. You get your long dividend and the owner of the shares you borrowed gets his dividends that you have to pay him (since neither of you techically own the stock now, but the original owner might not know it).

Answer 3

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Answer 4

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Answer 5

i don't think you receive a dividend when u go short