Short Selling Is Tough Business

Re:Short Selling Is Tough Business by nodesocket on Tuesday September 18, 2018 @08:55PM (#18020767)

For me the upside of short selling is not worth the risks[1]. Long term the market appreciates, so if you are young, wait it out and rake in the annual average 6% S&P market gain.

  [1] RISKS
  - Upside is capped to 100%, the most you'll ever make is 100% shorting.
  - Downside is uncapped, unlimited losses.
  - Have to pay interest while you hold the short position.

If you really believe in a short position, the only strategy I'd personally recommend is put options. Limits your loss to the total cost of the options, and upside is more than 100% potentially.

[ Parent | on HN ]

Re:Short Selling Is Tough Business by yellowstuff on Tuesday September 18, 2018 @09:23PM (#18020907)

> Downside is uncapped, unlimited losses.

As Chanos likes to say: "I've seen more stocks go to zero than infinity."

[ Parent | on HN ]

Re:Short Selling Is Tough Business by bluquark on Tuesday September 18, 2018 @09:14PM (#18020854)

Put options have their own enormous downsides. You pay a large premium up front, and you lose everything if the stock either A) doesn't change value at all or B) collapses later than you predict. Both methods are a rotten deal.

That's quite unfortunate for society as a whole, since it means there are very few people with the incentive to deflate bubbles and frauds.

[ Parent | on HN ]

Re:Short Selling Is Tough Business by toast0 on Tuesday September 18, 2018 @10:07PM (#18021103)

Put options cap your downside, and cap your time horizon. You can pay the premium for a very long horizon if you want -- if you think the company is going to fail all the way to zero, the prices pretty far out of the money are often pretty low even at 2 years out.

It would be pretty disappointing if the stock kept climbing and then crashed 2 days after the options expired; but at that point you might have given up on your traditional shorts as well.

[ Parent | on HN ]

Re:Short Selling Is Tough Business by bluquark on Tuesday September 18, 2018 @11:46PM (#18021523)

It would be even more disappointing if the stock barely moved, and then crashed 2 days after the option expired. In that event, the put goes to zero and the traditional short wins the jackpot.

A more abstract way to make the same point is that a put or call is making a bet about volatility, whereas traditional long or shorting is a pure directional bet.

[ Parent | on HN ]

Re:Short Selling Is Tough Business by nodesocket on Wednesday September 19, 2018 @02:40PM (#18026593)

I know this pain. I bought some Jan 19' $10 put options in Kodak right after they announced their nonsense cryto abomination.

I knew it had run on speculation and was going to come down. The problem was I timed it wrong. By Feb 7th after my options expired Kodk was trading in the mid $2 range, down from $11. I lost my entire option bet, oh well. Lession learned.

[ Parent | on HN ]

Re:Short Selling Is Tough Business by bluquark on Wednesday September 19, 2018 @04:22PM (#18027406)

I think frequently about buying puts but never pulled the trigger. It's so, so tempting because in cases like that, you are 100% sure that you're right, and in fact you actually are right.

The last time I thought of buying puts was a month ago when Tesla was at 350$, propped up by the "funding secured" claim. It was so obviously bogus and a sign of desperation. But I was terrified of buying an all-or-nothing lottery ticket, so I didn't. That one would've been a big winner and now I feel the pain of missing out. Hearing your similar Kodak story is useful to reinforce my resolve that I should just stay with vanilla investing strategies.

[ Parent | on HN ]

Re:Short Selling Is Tough Business by slededit on Wednesday September 19, 2018 @05:36AM (#18022994)

The traditional short has to close their position at some point is well. It’s never an unlimited duration.

[ Parent | on HN ]

Re:Short Selling Is Tough Business by perl4ever on Tuesday September 18, 2018 @11:05PM (#18021347)

"Long term the market appreciates"

Yes, but the point is that almost breaking even on short bets can complement your long bets in a synergistic way. Because the returns are helpfully uncorrelated. It probably takes some math to really appreciate, but I can kind of see it.

[ Parent | on HN ]