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

What do investors really want?

The long/short industry seems to go through a severe existential crisis every time the market "hits a soft patch." Investors are rudely reminded that downside protection only means limited downside with virtually no upside. The industry has operated from a "build it and they will come" product supply model. If the objective is to build sustainable businesses, it is high time we paused and looked at the world from an investor's perspective. This will provide crucial context to build a long/short product that meets investors' demands step by step.

Lessons from the 2007 quants debacle

"And so castles made of sand,
melt into the sea,
eventually."

– Jimi Hendrix

In August 2007, cross-sectional volatility took markets around the world by surprise. Although indices did not move much, constituents jumped across the board for a few days. Soon, rumors of unwinding from various quantitative...