nrbusiness1982 over at Y!posted a topic about this I have copied it below.
The August 28th and 31st price appreciation was simply speculation buying. Few short positions have covered as of yet because of our taxation system. Investments held for 365 days or less are taxed as short term gains while investments held for 366 days or more are taxed as long term gains. Short term gains are taxed at your personal income tax level. The highest level for 2009 is 35%. Long term gains are taxed at 15% for 2009. This taxation difference encourages shorts to hold their positions until the end of September. Consider the following:
$10,000 Gross WAMU Short Profit @ 366 days = $8,500 Net
$10,000 Gross WAMU Short Profit @ 364 days = $6,500 Net
This is a $2,000 net profit differential simply by holding two days longer. The $2,000 differential is huge even if the price of underlying security is appreciating. Considering WAMUQ, the security has to appreciate greatly before shorts even consider closing their positions.
Here’s an additional example using historical quotes:
9/02/08 Short 10,000 @ $4.24
9/29/08 Cover 10,000 @ $0.03
Holding Period: 27 days
Gross: $42,100
Net: $27,365
9/02/08 Short 10,000 @ $4.24
9/03/09 Cover 10,000 @ $0.18 (8/31/09 Quote)
Holding Period: 366 days
Return: $40,600
Net: $34,510
Despite a 600% price increase in the underlying security, the second holding returns a profit differential of $7,145 (+26% ROI) over the first, even though the first trade displayed perfect execution. In the matter of WAMUQ, taxation outweighs execution greatly. In fact, WAMUQ would have to rise to $1.02 before the tax advantage of holding 366 days is lost. Given the distance between $.18 and $1.02 short sellers have little reason to close their positions. ShortSqueeze.com reports 55,684,300 WAMUQ shares still remain shorted.
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