It Feels Like the Game Is Rigged

Re:It Feels Like the Game Is Rigged by anonu on Monday February 01, 2021 @12:56AM (#25985985)

Shorting is riskier than going long by definition of what an equity is. Equity in a company means in a worst case scenario you go to 0 when you are long. If you flip that, when you are short, your loss potential is infinite.

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Re:It Feels Like the Game Is Rigged by smnrchrds on Monday February 01, 2021 @01:18AM (#25986119)

"I have seen more stocks go to zero than infinity"

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Re:It Feels Like the Game Is Rigged by minsc__and__boo on Monday February 01, 2021 @02:22AM (#25986408)

Question is, will Chanos's five-year short bet against Tesla end up paying out?

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Re:It Feels Like the Game Is Rigged by smnrchrds on Monday February 01, 2021 @10:12AM (#25989304)

Maybe not, but I'm willing to bet he won't lose ∞$ either.

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Re:It Feels Like the Game Is Rigged by smabie on Monday February 01, 2021 @01:04AM (#25986036)

It's not that simple you have to consider the total portfolio. To give a simple example, longing AMD and shorting Intel is less risky than just longing AMD.

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Re:It Feels Like the Game Is Rigged by anonu on Monday February 01, 2021 @01:08AM (#25986063)

Yes and no. You are referring to calculating the variance of a portfolio which takes into the consideration the covariance of components. You can assume your normal or lognorm distribution of returns. All fine and good.

But if INTC becomes the ire of r/wsb, you can throw any sort of historical covariance out the window. There is NO hedge for this.

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Re:It Feels Like the Game Is Rigged by harry8 on Monday February 01, 2021 @01:13AM (#25986094)

>You can assume your normal or lognorm distribution of returns.

I think we're seeing how that all comes unstuck on a grand scale right about now. The assumption doesn't hold at the times you really need it and boom!

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Re:It Feels Like the Game Is Rigged by anonu on Monday February 01, 2021 @01:21AM (#25986134)

If you're talking about GME its not really a grand scale. The US Stock market cap is $50 trillion. GME is $22bn as of Friday afternoon or 5 basis points of the rest of the market.

Yes, big SD moves happen frequently enough that we have to revisit our normal distribution models. But GME isn't really the reason to do this.

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Re:It Feels Like the Game Is Rigged by harry8 on Monday February 01, 2021 @02:36AM (#25986462)

Have you tried that advice at Melvin?

Size of the market doesn't change the risk you carry of wrong assumptions. Have LTCM if you want another spectacular failure of risk management with wrong assumptions like these. There's plenty more when you're done with that one.

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Re:It Feels Like the Game Is Rigged by harry8 on Monday February 01, 2021 @01:11AM (#25986084)

That isn't true.

1) Longing AMD your maximum loss is the amount you've invested in AMD.

2) Add an Intel short your maximum loss on the Intel position is without limit. Intel can go for a massive run for unforseen reasons completely separated from AMD and others in the industry, which is stunningly obvious right now.

is (1) + (2) can be a load more risk than just going long one stock.

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