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

Symptoms of poor portfolio management systems

When it comes to turning performance around, a good PMS is the lowest hanging fruit. In 2005, I joined a hedge fund whose PMS was so ugly, looking at it could have caused brain damage. I promptly tooled it up, at least to get rid of the health hazard. Suddenly, problem children lit up like garlands on a Christmas tree. Volatile penny stocks on the short side, lazy dogs, and unappreciated racing hounds were all swiftly dealt with. Volatility came down. Performance was more consistent. The Sharpe ratio jumped. Investors noticed. Assets Under Management (AUM) grew. It was that simple.

Everyone wants to know the "secret sauce" of the winners, but this is one area where the lessons of the "alpha-challenged" ones might help us from inadvertently repeating the same mistakes. Here is a simple exercise that will help you figure out if your system is in need of an upgrade. Deficient PMSes share one or more of the following...