Can I cover a short sale with the stock I already own?
Example Scenario: I short 100 shares of company XYZ. Incidentally, I also own 100 shares of XYZ. The price of XYZ goes down and I need to cover my short sale.
Question: Can I cover using the 100 shares of XYZ that I already own, or do I need to explicitly "buy to cover", and purchase from my broker's existing inventory? If the former is true, how do I initiate it?
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Yes you can. This is known as a short selling against the box. In the old days, this was used to delay a taxable event. You could lock in a gain without triggering a taxable event. Any loss on one side of the box would be offset by a loss on the other side, and vice versa. However, the IRS clamped down on this, and you will realize the gain on your long position as soon as you go short on the other side. See www.investopedia.com/terms/s/sellagainstthebox.asp.
As to how to initiate the short cover, just transfer the long position to the same account as your short position and make sure your broker covers the short. Should be relatively easy.
Yes, you call the broker and tell him to use those shares to deliver to the short position.
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