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Learning to trade the short side.
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Learning to trade the short side.

  #1 (permalink)
Elite Member
New York NY USA
 
Futures Experience: Beginner
Platform: esignal, ninjatrader,
Favorite Futures: Stocks
 
Posts: 110 since Oct 2012
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Learning to trade the short side.

One of my pet peeves is when people say "Shorting stocks is much more dangerous than going long. A stock can only go down to zero. So that is how much you can lose. But we can't say how high stock can go. Your loss in a short could be limitless"

This sounds like one of the stupidest things I have ever heard in my life. I can say with absolute certainty that no stock you own is going to infinity.

Having gotten that off my chest. Can anyone tell me a good place to learn about trading shorts or puts?
Really just want to prepare myself for when the bull market ends.
Right now I only go long. I have a simple system. I scan for some strong, but not particularly esoteric technical signals. Then I take a position that look nice and just pitch it up on the green and take a small profit. Grab a point here or sometimes only 1/2. But with commission rates so low, it seems to work okay.

I'd like to find out if the same trading style can work in a bear market or in taking short positions.
Thanks for any suggestions. No hurry. We may be bullish for years. But I want to be prepared.

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  #2 (permalink)
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  #3 (permalink)
Trading Apprentice
Springfield Virginia/USA
 
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Hello which instrument are you trading with the commissions so low?

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  #4 (permalink)
Market Wizard
Kyoto, Japan
 
Futures Experience: Beginner
Platform: LiveVol
Broker/Data: TD, TW, IB, Saxo
Favorite Futures: UVXY, VXX, VIX, /VX
 
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mcteague View Post
This sounds like one of the stupidest things I have ever heard in my life. I can say with absolute certainty that no stock you own is going to infinity.


Look up the KaloBios short squeeze from last year. It does not have to go to infinity for a trader to get carried off the floor.

I specialize in trading the UVXY. One of my rules is no shorting the UVXY cash. The reason should be pretty obvious. A lot of people do short it, though. Another rule of mine is no selling naked calls on the UVXY. A lot of people do this, too. It's plain insanity.

But let's say you want to get short the UVXY, because after all it's the most dependably lucrative trade on the board. What do you do?

The best thing is short call spreads.

Shorting outright or selling naked calls is like climbing a rock wall with no rope; using spreads you are adding a rope and pitons. It takes you a little longer to get to the top of the wall but the risk is limited.

So, if I were you I would learn to trade options spreads.

And I think you are smart to want to learn short selling. Join the mere 4% of traders who have ever sold short.

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I did not mean to suggest there isn't a lot of risk. You can certainly lose your shirt. That why it is unlikely I would likely never naked short. My bankroll is just not suited to that. But learning more about options and learning spread strategies is an excellent suggestion. Thank you.

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  #6 (permalink)
Market Wizard
Kyoto, Japan
 
Futures Experience: Beginner
Platform: LiveVol
Broker/Data: TD, TW, IB, Saxo
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If you want to learn options then the usual answer given around here is TastyTrade.

Access via dough.com, do the certificate course, and set up a $3000 account.

You will be on your way in no time.

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Market Wizard
Kyoto, Japan
 
Futures Experience: Beginner
Platform: LiveVol
Broker/Data: TD, TW, IB, Saxo
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Posts: 916 since Oct 2013
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Really good interview with Nathan Michaud, momotrader, who had a big short position on and had to go accross the street to move his motorcycle because of a parking violation. He gets back from moving the bike and his big short position had moved on him big time.

https://chatwithtraders.com/ep-055-nathan-michaud/

I think the key is keep the trade size small, but if it's big keep your eye on the short like you would a toddler. You don't take your eye off a toddler.

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  #8 (permalink)
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I'm a stock/ETF options trader, and here's some of my thoughts for your consideration.

1. There is an additional trading costs associated with short selling a stock: interest in borrowing stock by the broker for you to go short the stock.

2. Please take note of ex-dividend date when you short a stock. If you are in a short position until the ex-dividend date, you will have to pay for the dividend unlike a long position trader who receive the dividend.

3. I concur with suko. Do not short UVXY or any futures related to VIX (or S&P500 volatility index). Volatility of the markets can shoot up huge when there is any bad news happen in the market. VIX & UVXY shot up ~40%/~32% yesterday.

4. If you really want to short a stock, it makes more sense to buy a put options (provided the stock has options associated with it). Reasons are:
* No need to pay any interest as compared to going outright to short sell a stock.
* No worries about paying dividend. (ex-dividend will affect options price but I'll not go into details to complicate the discussion).
* Depending on which put options strike price you buy, you will certainly be paying less than short selling the stock itself.
(Note that buying a put options with a delta of less than 1 means it will replicate the short stock position in less than 100%. For example, if you choose a delta of 0.8 and when the stock price drops $1, the put options price will increase only 80 cents.)
* Note that the maximum risk of buying a put options is the total amount you pay for the put options.
* There are other ways to replicate a bearish outlook on the stock beside buying a put options using other options strategies: naked calls, covered calls (if you already own the stock), bear call spread. Each of them has its own risk/reward profile and you must know what you want to achieve.

I'm not suggesting one should buy a put options whenever one is bearish about a stock. Do note that options has a limited life span before it becomes worthless (if it's out of the money by expiration). Please get yourself educated about options if you want to choose to trade it. Suko has suggested one which I think is a good place to learn.

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  #9 (permalink)
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rserrao View Post
Hello which instrument are you trading with the commissions so low?

Currently I only trade stocks listed on the NYSE or NASD. Which have an average daily volume over 300,000. Stocks like that tend to be more likely to produce reliable and predictable chart patterns.

Low commission is a relative value. But commissions are certainly lower than twenty years ago.

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  #10 (permalink)
Market Wizard
Kyoto, Japan
 
Futures Experience: Beginner
Platform: LiveVol
Broker/Data: TD, TW, IB, Saxo
Favorite Futures: UVXY, VXX, VIX, /VX
 
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Posts: 916 since Oct 2013
Thanks: 667 given, 668 received



mcteague View Post
Currently I only trade stocks listed on the NYSE or NASD. Which have an average daily volume over 300,000.

Liquidity is all-important.

If you get to trading options, especially spreads, it becomes even more important.

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