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

The long side world according to GARP

"He wished he could arrange a maiming as a kind of moral lesson."

– John Irving, The World According to Garp

On the long side, market participants often look for stocks with solid long-term prospects that are temporarily mispriced. They want to buy something that grows at a discount, the famous "margin of safety." This approach is known as Growth At a Reasonable Price (GARP). If that seems to work fine on the long side, then do the opposite on the short side and voila, right? It could even sound something like Dive at a Record Price (DARP).

The first logical step is the easiest one: find stocks with surreal pricing. There is always a stock, sometimes an entire industry, that seems to defy the conventional laws of gravity. With monetary authorities around the world asleep on the "print" button, there is no shortage of absurdly priced stocks. The second step is to do some analysis on...