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Officially, Rackspace is ~30% sold short. Someone is already making tax-free billions shorting it to death.

by ferdek 4y ago

koolba 4y ago
Why would it be tax free? Until the position is closed out it'd be an unrealized gain but there's nothing special about shorting. Gains are not taxed until they're actually realized by closing out the position.
- SteveNuts 4y ago
  By leaving the position open forever and taking a loan against the security.
  - kaashif 4y ago
    I'm not sure I understand - to sell short you already need to borrow securities, can you actually take loans against a short position that becomes worth something? That's interesting.
    - ferdek 4y ago
      You can Fail-to-deliver and never locate the stock that you are supposed to borrow. Or you can short ETF with this specific company in basket while going long on anything else in this ETF. Everything you own, even your own debt, can be used as a collateral by creating and selling swaps.
      - tdees40 4y ago
        I work in markets. No, you cannot just fail to deliver. I'm also not sure how the ETF thing would work. If it's 1% of the ETF you're going to hedge out the position using a giant notional. It doesn't work.
        ferdek 4y ago
        Official SEC document regarding regulation SHO describes both illegal and legal cases when you can "just" fail to deliver [0]. Market makers which also happen to have hedge-fund branches are having the most flexibility in this. [0] https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
        tdees40 4y ago
        So it may not be illegal in all cases (although it is in many cases), but how does failing to deliver close out a short position?
  - gmiller123456 4y ago
    By leaving the position open forever and taking a loan against the security. Where would they get the money to pay installments on the loan? What you're claiming is really just shuffling around which dollar gets taxed.
- ferdek 4y ago
  Maybe I misremembered something and cannot find a source now, but I think there was some way to avoid paying tax on short sales when company goes bankrupt and gets delisted. EDIT: See sibling comment. EDIT 2: Am I reading this right? almost 1,800,000 shares failed to deliver just in one day of Sep 22nd? [0] [0] https://fintel.io/ss/us/rxt https://fintel.io/ss/us/rxt
  - kaashif 4y ago
    If the company actually goes bankrupt and their stock is delisted from exchanges, covering your position becomes much harder since liquidity is greatly reduced. I think the ideal scenario for a short seller is if the stock loses 99%, stays listed, they cover, then it gets delisted. I might have that wrong though.
    - seabird 4y ago
      You have that wrong; bankruptcy is the ideal scenario for somebody with a short position. The brokerage writes it off. The shares are worthless, so why go after somebody for owing you $0?
      - kaashif 4y ago
        I did some research and found that I was right. No-one's going to go after you. The problem is that you have to keep paying the fee to borrow shares, and you can never repay that loan because there are no shares available anywhere. See this article for an example: https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to-zero-isn-t-great-for-short-sellers https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to... > He shorted some stocks that he thought were frauds, and the SEC agreed that they were frauds and halted them, and then ... things got worse for him. The shares were worthless, but they didn't trade at zero or $0.01 or whatever: They didn't trade at all, so he couldn't buy them back to deliver to his stock lenders. Usually short sellers do manage to cover at some point before the stock completely stops trading though.
popcorncowboy 4y ago
Not that I'm saying Apollo's strategy was to pump, dump, short and then crash the company, but if you could generate the trading volume to support the play, you could make money at every point in that trade.

Officially, Rackspace is ~30% sold short. Someone is already making tax-free billions shorting it to death.

by ferdek 4y ago

Officially, Rackspace is ~30% sold short. Someone is already making tax-free billions shorting it to death.

Why would it be tax free? Until the position is closed out it'd be an unrealized gain but there's nothing special about shorting. Gains are not taxed until they're actually realized by closing out the position.

SteveNuts 4y ago
By leaving the position open forever and taking a loan against the security.
- kaashif 4y ago
  I'm not sure I understand - to sell short you already need to borrow securities, can you actually take loans against a short position that becomes worth something? That's interesting.
  - ferdek 4y ago
    You can Fail-to-deliver and never locate the stock that you are supposed to borrow. Or you can short ETF with this specific company in basket while going long on anything else in this ETF. Everything you own, even your own debt, can be used as a collateral by creating and selling swaps.
    - tdees40 4y ago
      I work in markets. No, you cannot just fail to deliver. I'm also not sure how the ETF thing would work. If it's 1% of the ETF you're going to hedge out the position using a giant notional. It doesn't work.
      - ferdek 4y ago
        Official SEC document regarding regulation SHO describes both illegal and legal cases when you can "just" fail to deliver [0]. Market makers which also happen to have hedge-fund branches are having the most flexibility in this. [0] https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
        tdees40 4y ago
        So it may not be illegal in all cases (although it is in many cases), but how does failing to deliver close out a short position?
- gmiller123456 4y ago
  By leaving the position open forever and taking a loan against the security. Where would they get the money to pay installments on the loan? What you're claiming is really just shuffling around which dollar gets taxed.
ferdek 4y ago
Maybe I misremembered something and cannot find a source now, but I think there was some way to avoid paying tax on short sales when company goes bankrupt and gets delisted. EDIT: See sibling comment. EDIT 2: Am I reading this right? almost 1,800,000 shares failed to deliver just in one day of Sep 22nd? [0] [0] https://fintel.io/ss/us/rxt https://fintel.io/ss/us/rxt
- kaashif 4y ago
  If the company actually goes bankrupt and their stock is delisted from exchanges, covering your position becomes much harder since liquidity is greatly reduced. I think the ideal scenario for a short seller is if the stock loses 99%, stays listed, they cover, then it gets delisted. I might have that wrong though.
  - seabird 4y ago
    You have that wrong; bankruptcy is the ideal scenario for somebody with a short position. The brokerage writes it off. The shares are worthless, so why go after somebody for owing you $0?
    - kaashif 4y ago
      I did some research and found that I was right. No-one's going to go after you. The problem is that you have to keep paying the fee to borrow shares, and you can never repay that loan because there are no shares available anywhere. See this article for an example: https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to-zero-isn-t-great-for-short-sellers https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to... > He shorted some stocks that he thought were frauds, and the SEC agreed that they were frauds and halted them, and then ... things got worse for him. The shares were worthless, but they didn't trade at zero or $0.01 or whatever: They didn't trade at all, so he couldn't buy them back to deliver to his stock lenders. Usually short sellers do manage to cover at some point before the stock completely stops trading though.

popcorncowboy 4y ago

Not that I'm saying Apollo's strategy was to pump, dump, short and then crash the company, but if you could generate the trading volume to support the play, you could make money at every point in that trade.