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

Take a Walk on the Wild Short Side

"In theory, theory and practice are the same. In practice, they are different."

– Yogi Berra, Yankees philosopher

Short selling is a secret fantasy for many long-only participants. They have all come across some stock they have analyzed, concluded it was doomed to fail, and wished they could short it. Then, they watched it crater. They feel confident their analytical superpowers would work wonders on the short side as well. It all works well in theory until it has to work in practice. When market participants come to the world of short selling, they assume they should simply do the opposite of what they do on the long side.

In this chapter, we will map the journey from the long side to the short side. We consider why most traders think they can sell short yet fail in practice. First, we will look at why shorting on valuations fails. Then, we will eviscerate the structural short tourist trap for good...