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
Other Books You May Enjoy
15
Index

Other exposures

Some market participants like to keep track of other hedges, such as industry or sector risk, or exchanges and factor risk.

Sector exposure

Keeping diversified sector exposure is good practice. Typically, you do not want your entire long/short sector exposures to look like technology long in 1999, short in 2000. Some market participants like to fully hedge their sector exposure to mitigate industry risk. This introduces another unnecessary layer of complexity. In practice, entire sectors dominate or trail the markets. A case in point: In 2008, one would have been hard-pressed to find any stock in the financial sector on the long side.

Sector neutrality works with only pairs trading or arbitrage strategies. Not all the stocks within the same sector travel at the same speed. Sector neutrality introduces an interesting capital allocation problem: Should sector allocation reflect the market capitalization of the underlying sectors or the disparity among constituents...