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

Myth #8: Short selling collapses share prices

Short sellers simply do not have the firepower to torpedo share prices. Short sellers need to borrow shares in order to sell short. This comes from shareholders who lend a fraction of their holdings to stock loan desks. Borrow availability usually averages less than 10% of the free float, in other words, the portion of shares available to public investors. This means that short sellers represent a fraction of the overall sell volume.

The BB guns of short sellers may have a punctual market impact, but the real damage is inflicted by the heavy artillery of institutional investors selling. This leads us to an interesting point about short selling. Making money on the short side is not about spotting stocks that could potentially go down. It is about riding the tail of institutional investors liquidating their positions.