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Author: CarlErikson Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121587  
Subject: Selling short on Datek Date: 11/10/1999 3:05 AM
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Here is another one of my convoluted questions...

Suppose you own 100 shares of MSFT in Datek Online as a long-term holding. However, you actively trade in this account as well. One day you would like to short 200 shares of MSFT. However, on Datek's menu for trading, it only has a Buy and a Sell and no "Sell Short." So when you sell short the 200 shares you must enter a "sell" and then Datek treats it as two different transactions. You sell your long-term holding of 100 shares of MSFT which has an associated $9.99 commission. And then you sell short 100 shares of MSFT which also has an associated $9.99 commission. At the end of the process, you are net short 100 shares which is what you would like. However, in reality what you wanted is to be long 100 shares and short 200 shares - not just short 100 shares. Again, there is no net difference in these transactions - you still own -100 shares. However, the way in which you interpret these actions does make a difference in terms of taxes (if my current understanding of the tax laws is correct). If you are just short 100 shares, then that means you must pay capital gains on the original long position. If you are long 100 shares and short 200 shares, then you must worry about a constructive sale on the first 100 shares sold short - but it is possible to gain an exemption from this if you manage things correctly late in the tax year. So my real question is the following: at Datek Online where there are only two options - Buy and Sell, is it possible for me to identify Sell transactions as Sell Short transactions for tax purposes? For simplicity, assume that the short sell was done in afterhours trading on Island which does not require an uptick to short and MSFT was a shortable stock - i.e., there were shares to borrow at the time of the sale. In other words, shorting (instead of selling from the long position) the first 100 shares would have been a legal transaction at the time.

Once again, I would greatly appreciate any advice you can give me on this topic,
Carl Erikson
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