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

Order prioritization

Entry is a choice and exit a necessity. You may enter as you see fit, but you rarely have the luxury to exit on your own terms. In execution trader English, entries are limit orders while exits are stop or market orders. Long-only managers often struggle with cash balances. They need to know how much they can buy on a daily basis. A long/short portfolio has a few more moving parts than a classic long-only book. Things can get messy quite quickly. It is therefore prudent to set "right of way" for entries and exits. In execution trader English, exits always come first. Cash-depleting orders have the "right of way." This can be summed up as follows:

  1. Buy-to-cover is the highest priority. It functions like a buy order. It depletes cash. Short-cover has an impact on long buying power and gross exposure. Buy-to-cover may in rare cases trigger margin calls.
  2. Sell long is the second-highest priority. It frees up immobilized cash.
  3. ...