What are your best short selling ideas right now?
Answer by Laurent Bernut:
This is answer to a question on Quora.com
Life is unfair, so are markets, get used to it
This is a novice question that lead to two unprofitable biases: fairness bias and confirmation bias
When new to the fascinating short world, we want to short overvalued stocks. They believe that this has gone too far and that it “should” go down (same grammatical “should” as there “should” be peace on earth BTW).
We are hard wired for fairness. Even before speaking toddlers understand fairness. One of the subconscious beliefs behind this reversion to the mean is fairness.
Well, life is unfair, markets are unfair, let’s just get used to it. Overvalued stuff often becomes ridiculously overvalued. Remember this please: pioneers are the ones with arrows in their backs2nd stage, when we have lost enough money playing vigilante, we often turn ultraconsetvative. We want every box to be ticked, every fact confirmed. Every bit of information has a price tag in the markets. So stocks drop like stone, waiting for confirmation is an expensive habits.
If you want to be consistently profitable in the short selling world, change your mindset from outcome (need to be right bias) to process (probabilities). Probabilities are calculated risk assuming <50% hit ratio.
Short selling is a psychological & probabilistic game
You never go long ?
Hello Django,
PLease find a thread on Quora:
https://www.quora.com/What-does-it-mean-to-short-the-volatility-index/answer/Laurent-Bernut
As an options trader, You will appreciate.
WIth this IAU trade, I bought some IAU OTM 120 April Call. Long underlying and Long option is an unusual, stupid trade
Well, I have never been accused of being intelligent, so it was quite fitting
I had some left-over risk budget after the Long ETF, 0.08%
So, I bought some OTM for the remainder.
Now, there is plenty of Theta in the trade
More importantly, it is quite rare to have a Buy Long SIgnal amidst a sell-off. That signals a strong inverse correlation.
So, with the scale-out trading method, all it takes is a move of 3% to cover the cost of the option through partial exit of the underlying, ANd there is likely to be a bit more turbulence.
This option will increase the Long exposure if it starts to work, which will allow mor eleverage with identical net
Thank You for your question,
Laurent