Short Sell Against the Box

You bought AMZN at $1,000. It's now at $2,200. You want to lock in your $1,200 of gain. So you short against the box.

Short selling represents a bet that shares of a particular company will go down in value. It involves borrowing stock from someone else, selling that stock, and then repurchasing the stock later after it (hopefully) falls in value.

A short sell against the box involves shorting a stock you already own. So...you borrow something that you otherwise own, just to sell it and then buy it again later...all so you can return it to the original owner.

It might seem pointless, like driving to someone's house just to borrow their car. After all, any money you make on the short, you lose in your original holdings; as the stock falls and your short makes money, the shares you already own lose value.
However, shorting against the box has some tax benefits. For a long time, it was a way to delay paying taxes on capital gains you earned. Say it's November and you have a nice gain built up in a stock. You want to sell the shares to pay for Christmas gifts, but you don't want to pay the taxes this year. You can short against the box...selling the borrowed stock and using that cash for your holiday purchases. Then, after New Year's, you can square up all your positions, closing the short and selling your stock. You're back to where you started, but the capital gains you book are taxed in the new year.

Nowadays, the technique is much harder than it used to be. In the 1990s, Congress changed the rules after some high-profile abuses of shorting against the box to avoid taxes. It's still possible to do, but the rules are much more constraining.