Dangers of shorting stocks
- Thread starter john7722
- Start date
Profitable trader here. Shorted >1000 names over last few years thru borrowing shares. Including GME and most of meme stocks.
Recommendation:
All stocks that at least doubled from point of entry till highest intraday high over next 5 days.
Stocks universe: price above 10$, minimal liquidity filter
Setup: on the next day after stock started making unusual move, defined as 2 * 10 days ATR
Entry: limit order at yesterday's
Test period 2010-now:
Conclusion: you have reasonable confidence that stock will not 10x over 5 days period within defined parameters.
This is just an example. People will make different conclusions as well as have different risk tolerances.
Generally, reducing short period will significantly reduce your exposure to such moves. Higher priced stocks are much less likely to have them.
Recommendation:
- Define what exactly you're shorting
- Get good data and crunch some numbers
- Make your own conclusions
All stocks that at least doubled from point of entry till highest intraday high over next 5 days.
Stocks universe: price above 10$, minimal liquidity filter
Setup: on the next day after stock started making unusual move, defined as 2 * 10 days ATR
Entry: limit order at yesterday's
Test period 2010-now:
Conclusion: you have reasonable confidence that stock will not 10x over 5 days period within defined parameters.
This is just an example. People will make different conclusions as well as have different risk tolerances.
Generally, reducing short period will significantly reduce your exposure to such moves. Higher priced stocks are much less likely to have them.
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I only do VERY short term shorting but yes the fear of a Buyout is always in the back of my mind. The 3 companies that were bought out today( VOLT,TRQ and NLSN) I see no reason why I would have been holding them short to begin with,although I'm sure some traders were. The amounts those companies popped were extremely painful to shorts and probably triggered margin calls but were not account-ending events,unless you had a ridiculously large position size but that's on you.
Actually, I would like to amend my last comment. Risk of ruin, or risking half your account, or just 5% always comes into play.
But are there any statistics which show intraday moves like NLSN to the down side as well as upside. IE. take-unders, missed earnings intraday, bad news? I'm on my 26th year, and I don't see down moves like that very often. Up moves like that? A few times per year, at least.
And it looks like this thing trades at least an average of 5mm per day, so it's not like it wasn't attracting attention.
But are there any statistics which show intraday moves like NLSN to the down side as well as upside. IE. take-unders, missed earnings intraday, bad news? I'm on my 26th year, and I don't see down moves like that very often. Up moves like that? A few times per year, at least.
And it looks like this thing trades at least an average of 5mm per day, so it's not like it wasn't attracting attention.
Agreed. That's all I do when it comes to shorting. NLSN was only down $.5 when the Nasdaq was collapsing, which is nothing for a 17 dollar stock in a volatile market.
I apologize. I am way off on a tangent from this thread.
Shorting stocks is extremely risky and shouldn't be taken lightly. It's hard for you as an individual to pressure a company or publish any credible reports that can move the market so I wouldn't count too much on that. On another note, BYND is being shorted like crazy by the hedgie at the moment.
Of course but I would bet more money is lost going long but very few ever say it is extremely riiiisky going long.
Like anything you have to know what you are doing.
Many stocks have gone to zero, none have gone to infinity.