Naked Shorts Are High Risk.... PERIOD!

[Scataphagos]

Regardless of the vehicle... equities, bonds, commodities, options, et al.... shorts are high risk!

A few years back I read a story about Julian Robertson's hedge fund. He claimed to "own the 100 strongest companies" and to be "short the 100 weakest"... true "hedging".

He ended the year net +70%!

After seeing what's happening with GME and others... what if someone(s) like RH and Reddit decided to "attack his vulnerable shorts and force them to cover at higher prices"? Could have been catastrophic for Robertson. Nobody did that, of course... but we see now that they could have.

Bottom Line.... Shorting in all vehicles is highly risky. if you short, you'd best have some mitigating play to limit your risk potential... like stops or offsetting options.

This entire business of "raiding the shorts" may take shorting out of favor entirely. We'll just have to see.

FWIW...

 

[Daal]

Long short funds are mostly a fraud, they always have been

Joel Greenblat on Hedge Fund Market Wizards:

 

[VEGASDESERT]

 

[Scataphagos]

My wife understands NOTHING about finance*... other than the spending part... and Trading Places is one of her favorite movies!

I got a kick out her a couple of days ago when she asked, "is this business about Gamestop sort of like the margin call scene in Trading Places"? Yeah, sort of like.

*Wifey is a pediatric orthopaediatric surgeon at a children's hospital (sometimes described as one who "cuts up little kids for a living"). She didn't want to marry another doctor because she "didn't want to have 2 people in the family who knew nothing about money**."

** I once was at a national ortho group meet where I told my favorite joke about doctors.... "What's the definition of a tax shelter?" It's "a hole in the ground surrounded by doctors... who threw in their wallet when told it was tax-deductible". Nobody laughed... except me!

 

[VEGASDESERT]

My wife understand NOTHING about finance... other than the spending part... and Trading Places is one of her favorite movies!

Its one of my top five, one notch below original 1987 wall street.

 

[Mercor]

Do shorts help cull weak companies and sometimes they smoke out fraudulent companies. Companies playing with their books

 

[Scataphagos]

Do shorts help cull weak companies and sometimes they smoke out fraudulent companies. Companies playing with their books

Sometimes shorts are part of a "pair trade offset".... one goes down while the other goes up, ideally, at relative different rates. Other times the shorts are betting on a supposed discrepancy between worth and stock price.... could be fundamentally weaker or even fraudulently. The markets have seen lots of both.

 

[newwurldmn]

Its one of my top five, one notch below original 1987 wall street.

I never got why people liked that movie.

A lot of it was over the top. and all my banker friends idolized a guy who was shown to be the villain in the end.

 

[maxinger]

Naked Shorts stocks / futures Are Low Risk.... PERIOD!
Naked credit options Are Very High Risk.... PERIOD!


When you short stocks or futures, make you have a hard / soft Stop.
The reward / risk ratio could be rather attractive.
Make sure you know how to read charts to trade.
And please, no counter-trend trading like what those
hedge fund managers were doing.

Don't sell naked options. The reward / risk ratio is extremely unattractive.