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Given that analysis indicates that 100 stocks in a portfolio ought to be
short-sold against an index, the current practice is to buy deep 90-180 day
PUTs and buy the appropriate number of SPX calls so that the portfolio is
(theoretically) neutral the day orders are executed. However, managing the
beta of the spreads in a portfolio with options is very time consuming (for
me at least). Option premiums in this context are rather mushy and balancing
is often fudged to the detriment of profit. Doing the same "thing" with
stocks is much more precise and takes considerably less work as there are
tools to automate the process that can't imo be used with options.
The IRA short-sale rule doesn't prevent funds from being invested in an
entity, such as a company under the 40 Act or a Hedge Fund, that short-sells
stocks, to the best of my knowledge. With some invention, is it doable in
compliance terms to establish one's own entity that accepts subscriptions
for interests, that short-sells (as well as buys), but only accepts
subscriptions from a single IRA? The goal is to obviate the short-sale rule
by shifting the actual short-sale a step away from the IRA.
I imagine that if this fictional entity accepted subscriptions from other
sources as well as "my" IRA and the mix of subscribers was reasonably
spread, then it's probably doable. To be sure there are other issues that
relate to an entity that accepts subscriptions.
Appreciate any comments.
Thanks in advance
Colin West
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