Salt Lake Telegram | 1932-09-05 | Page 12 | How Traders 'Cover for Box'

1 ii HOW TRi TRADERS RS I COVER FOR BOX l Short hort Selli Selling g Operation One Explanation of Market Recovery JAGGER By CLAUDE A. A Associated Press Financial Editor I NEW YORK Sept 5 P Among P-Among Among the various explanations offered for forthe forthe forthe the striking recovery in the stock market mar mar mar- ket is the theory that there has been beena a a huge volume of what wall street for the box calls covering Wall street analysts have not been able to themselves as to the importance of this sort of short covering cov coy ering for or it has not been included in inthe inthe inthe the stock exchanges exchange's tabulation of the short position but cut in the various factors which have b brought ought a recovery I in Jn prices of some per cent In the short space of or two months some market mar mar- I ket authorities feel that covering for forthe f. f the box has been a very important factor This is covering of short sales by large investors or 01 capitalIsts capitalIsts' who had hedged their holdings much muchas as as mills hedge their purchases of commodities in the futures markets to protect themselves from declines in price while the materials are arc in their hands Selling against th the box as the first part of at the operation is known in Wallstreet Wall Wallstreet street works like this to take an example ex cx t ample Mr Jones has long been a sub stockholder in a certain con con- cern He has shares tucked away in his rus safe deposit box at the bank However let However let us say it is last February he February he is not impressed with the outlook for the stock which is selling at about 50 a share Perhaps that may be the best price he can get for lor a long time and he may need money Of course he would hate to part with the stock definitely now because he may not need all the money mane obtainable So he he sells part of it say shares short and andI I borrows that amount to deliver to the buyer It is now June let us say The stock is selling close to 20 a share Mr Mx Jones may take the stock out athi of at hi his safe deposit box if he desires to pay off the loan of or stock with which he has gone short Then he will get b back ck money oney put ut up as security when h he borrowed orrO stock t ck to go short he will wm nave have the l resulting from the sale of shares in February at 50 and the s sale le will no longer be short But Mr Jones it fortunately happens hap hap- pens does not need the money from rom the the sale of stock at 50 as he feared Jie Jie be might and furthermore he can cover cover his short sale by buying in the market and have a large profit on that transaction without touching the shares he has in his box Let us assume that he covered for the box at that time around 25 a share He made a gross profit of t b about ut on the short transaction tion lion and he still has hi his hiS' shares i which is back to around 50 a share ziga again