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

Structural shorts: the unicorns of the financial services industry

"If you want a guarantee, buy a toaster."

– Clint Eastwood

Once market participants have been burned a few times trying to melt the wings of Icarus stocks, they change approach. They crave certainty. They look for stocks that already tick all the "bad" boxes: Bad company in bad industry with bad products, bad management, bad valuations, bad news flow, bad ratings, and so on. They go on a hunt for structural shorts. Fortunately, there are a lot more companies traveling down the boulevard of failure than up the narrow path of success.

The problem is timing. Every bit of information has a price tag attached to it. This gets discounted in the share price. By the time short sellers accumulate enough evidence to conclude beyond the shadow of a doubt that they have encountered a structural short, institutional long holders have already left the building. The only shareholders...