How to choose stocks for shorting, based on their past performance?

[murray t turtle]

Hi Guys. I'm using Dr Alexander Elder The New Sell and Sell Short Chapter 7 (2nd edition) to pick stocks to short. He gives a step by step methodology there.

My strategy is to start by trading put options first (because the strategy used for puts should also work for shorting stocks because you're anticipating the market moving in the same direction-down). I will lose money as part of the experience of learning as a trader and losses with options are limited to the cost of the option. Losses shorting stocks are much higher!

Does anyone else have any experience of moving from trading put options to shorting stocks? How easily did profits in put option trading translate into profits shorting stocks? Thanks for the feedback.

%%Better than it used to be;
NO margin calls on SQQQ+ they may pay you a dividend...…………………………………..ANY single stock is risky,long or short.TRASH/ash like TSLA can fly up,LOL but its still closing below 50+ 200 dma.

BUT except for occasaional bearmarkets; long systems tend to make more...…………………………………………………………………………………………………………………………………..

 

[ironchef]

Does anyone else have any experience of moving from trading put options to shorting stocks? How easily did profits in put option trading translate into profits shorting stocks? Thanks for the feedback.

It is not a very logical question. If you can consistently make money trading put options, why short the underlying? You should make more money with options because of leverage.

You can follow Taleb and use his 80/20 (or 90/10) rule: 20% of your money trading options and 80% in conservative treasury. Your risks should be lower than shorting the underlying.

 

[J_C_Anderson]

It depends on particluar underlying stock. Sometimes there are no suitable options. For example, they could be too expensive due to high volatility-based extrinsic value, or the nearest strike if to far (e.g. you need to short at 33 while the nearest strikes available are 30 and 35, so you will need to pay more to buy ITM option). Another point is that trading stock itself could me more comfortable as it always has higher volume and liquidity. For this reason, it could be better to use stocks instead options. If we are going to short something on negative news or any other catalyst, we can choose the entry point with the lowes possible stop level to reduce risk. For example, sometimes it is possible to short $50 stock with $0.20 stop. In such case there is no need in "limited risk" provided by the option priced $2,50.
The only reason to use options could be to get more actual buying power. At the same time, if you have a small account, options trading could expose it to substantiall financial risk. By the way, options are also fall within the intraday trading regulation (for US accounts). According to that regulation, you are prohibited to execute more than 4 intraday trades per week.
Of course, there are situations when options work great. For example, if you are going to short something overnight, options would be the best solution since they will protect you in case of sudden gap or short squeeze.