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

Long/Short 1.0: the absolute method

"'But the Emperor has nothing at all on!', said a little child.

'Listen to the voice of innocence!', exclaimed his father."

– Arthur Andersen

The absolute method makes intuitive sense: buy stocks that go up, short stocks that go down. There is a one-to-one relationship between data coming from various providers, price charts on the screen, and what goes into the portfolio. Everybody speaks the same language. Investors, market commentators, and various other market participants talk about the same price and generally valuation levels. Shorting stocks that go down in absolute value generates cash that can be used to buy additional stocks on the long side and increase leverage.

There is only one small problem: the product does not always do what it says on the tin. Let's keep it civil: the absolute method has been a crass utter failure from the get-go and the following sections...