Tax-Aware Long-Short

Margin call me maybe

New products using margin deliver tax efficiency, but at what cost?

Brent Sullivan· September 28, 2025 · 6 min read

Graphic asking whether margin call risk threatens tax-efficient products built on long/short and box spreads — Carly Rae advocating for prudent risk management

Two of the hottest trends in private wealth are tax-aware long/short and borrowing via box spread.

Both have substantial pre- and post-tax perks, and both use margin.

That’s fine… when prudently managed.

This week, I’m taking the tax benefits of these products for granted and instead asking…

Is margin call risk a big deal?

Mentioned in this article…

NBER (Gary B. Gorton & Andrew Metrick): Securitized Banking and the Run on Repo
Basel Committee on Banking Supervision: Review of margining practices
Firstrade: Margin Loans (several worked examples)
AQR: Experience Matters: Addressing Five Common Criticisms of Tax Aware Long-Short (TA LS) Strategies

Underwriting margin call risk

What could go wrong?
Not all margin call risk is the same
Why should we care about margin calls?
What could cause a margin call? (6 rug-pulls)
Who’s in charge of the margin?