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 #9: Short selling is unnecessary during bull markets

"The best time to fix the roof is when the sun is shining."

– John F. Kennedy

Some market participants do not want to sell short during bull markets. They lament the scarcity of "good short ideas." Besides, they do not want to trail their competitors by wasting precious alpha shorting stocks. They procrastinate about sharpening the saw until it is rusty.

No bull market has ever boosted anyone's IQ. Market participants do not get smarter in bull markets; they become complacent. Just as waiting for a first heart attack to get in shape is not healthy, waiting for a bear market to learn short selling is an unprofessional way to manage other people's money. Short selling is a muscle that atrophies when not flexed.

The reason why investors keep their money in long/short funds is downside protection. Investors will forgive mediocre performance and stomach high fees through a bull market as long as they know there is downside protection in a bear market.

Beta jockeys believe there will be ample time to pick up short selling when the broader market turns bearish. After all, the outer game of short selling, tools, and techniques may be a little more sophisticated than the long side, but it is not rocket science. Short selling is, first and foremost, an inner game. Do not underestimate the time it takes to internalize the mental discipline of short selling.

The wrong time to start is when the long side is hemorrhaging money, and investors are breathing down your neck.