Short Selling for profit

Recently I bought a position of Smith an wesson symbol Swhc.

I made a mistake and bought too early at $6 a share. That was in May.

I july I finally was able to get out of my position at a profit.

but during the 2 months I held the stock I would have been able to do a short sale against the position.

This is called short against the box.

Its 1 way to turn a losing position into a winner.

you simply watch the stock find a new top and bottom price..

Then you sell short even though your sale price is below what you originally bought at.

With smith I watched it drop from 6.00 a share to 4.62 a share.

Now if you owned 1000 shares worth 6k and you short sold at 570 a share you put 5700 into your account.

now you wait for the stock to drop again

I saw it go between 570 and 505 6 times between may 09 and july 09.

now when the stock is say 520 a share you then buy back your short position and have your broker log this as a VERSES TRANSACTION.

This means the buy and sale will be listed on your taxes as the short sale occuring first and the buy that occured later was designated as the closing of that short position.

You now have made a 50 cent a share profit or 500 bucks gross profit.

YOU still own your original position and can use it again to guarantee another short position.

I was able to do this action 3 times while I waited for july as Thats when my research told me Swhc would have a new high and maybe high enough to sell my original may position at profit.

So I made 500 three times by shorting against the box and doing a versus buy back each time.

and then I made my 200 profit on my original position when I closed it in july.

That means 1700 gross profit on a 6k investment in 2 months.

Short against the box is the term used by brokers when you sell short against a position you own.

Versus buy back is the term you tell the broker to make sure that your short against the box sale is bought back with a new lower priced buy order.

Thus your original order is still in place.

The purpose of this trading strategy is to take advantage of market rules to turn a losing position into a winning position.

Even if I sold the position at a loss at say 570 in july.

I would have a 300 buck loss on the original trade.

But I would have had a 1500 gain on the short trades.

So I would have an overall profit of 1500 less 300 or 1200 and the wash rules would not stop me from writing off the loss as long as I did not trade the position within 30 days of the termination of my original position.

This is a very technical trade strategy and you should not try it if you are unfamiliar with the trading pattern of the stock you are playing.

Finally if you do a short against the box at a price less than your buy price and the market shifts and the stock rises. you can simply release the original long position that you shorted against.

Your total loss will be limited to the difference between your original buy price and your short sale price.

so If you bought at 6 a share and shorted at 5.70 a share and the stock went to 6.50 a share. instead of having an 80 cent a share loss on the short position.

You simply release the short position using the original 6 buck buy position and you only have a 30 cent loss.

This again is a very technical trade strategy and you better know your stock before you try it.

good luck