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 four horsemen of apocalyptic position sizing

"Only listen to advice from people you want to look like."

– Gilbert Bernut, father, superhero, unsung 20th-century philosopher

Whilst at Fidelity, I used to run my algorithm across other managers' portfolios. My unbridled ambition was to help my colleagues improve their performance by a whopping 0.01% at a time. Whilst it does not look like much, 1 basis point even on every other trade compounded over a year would be enough to lift a ranking from the second quartile to the rarefied atmosphere of top-decile performers.

It soon dawned upon me that the same stocks kept popping up across all portfolios. Put smart, passionate people together in a collegial atmosphere, and healthy cross-pollination naturally ensues.

What was more intriguing was the disparity in performance despite the low dispersion in holdings. One would expect similar holdings to generate similar performance. There were...