Book Image

Algorithmic Short Selling with Python

By : Laurent Bernut
Book Image

Algorithmic Short Selling with Python

By: Laurent Bernut

Overview of this book

If you are in the long/short business, learning how to sell short is not a choice. Short selling is the key to raising assets under management. This book will help you demystify and hone the short selling craft, providing Python source code to construct a robust long/short portfolio. It discusses fundamental and advanced trading concepts from the perspective of a veteran short seller. This book will take you on a journey from an idea (“buy bullish stocks, sell bearish ones”) to becoming part of the elite club of long/short hedge fund algorithmic traders. You’ll explore key concepts such as trading psychology, trading edge, regime definition, signal processing, position sizing, risk management, and asset allocation, one obstacle at a time. Along the way, you’ll will discover simple methods to consistently generate investment ideas, and consider variables that impact returns, volatility, and overall attractiveness of returns. By the end of this book, you’ll not only become familiar with some of the most sophisticated concepts in capital markets, but also have Python source code to construct a long/short product that investors are bound to find attractive.
Table of Contents (17 chapters)
14
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15
Index

Playing the short selling game

"Follow me if you want to live."

– Arnold Schwarzenegger, Terminator

The mechanics of short selling are deceptively simple. For example, you sell a stock at 100, buy it back at 90, and pocket the 10. It works in absolute or relative to a benchmark. There is only one additional step that needs to take place before the short sale. Short sellers deliver shares they do not own. So, they borrow those shares from a stock lending desk with their brokerage house first. Once they buy the shares back and close the trade, they return those shares.

Do not let that simplicity fool you. Due to the infinite, complex, random nature of the game that we have considered in this chapter, 90% of market participants fail. Of the remaining 10%, fewer than half will ever engage in short selling. That is the unapologetic reality of the markets.

Our objective is to navigate these challenges and succeed on both sides of the portfolio...