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The Shorting of Frauds, Overhyped and Bankrupt Stocks Journal
- Thread starter Daal
- Start date
Quote from atticus:
Buy back-spreads? No, I go to cash. You have my PM if you can predict that with any reliability.
What if the VIX opens at 100 one day?It doesn't take a lot of skill to know it will come back down. Yes, it could go to 300 but if the size of the trade is small there would be staying power there
Quote from Daal:
What if the VIX opens at 100 one day?It doesn't take a lot of skill to know it will come back down. Yes, it could go to 300 but if the size of the trade is small there would be staying power there
I thought you were referring to long b-spreads, not short. Sure, I am a gunslinger and love to short the stuff. As much as I love to short vol I hate short b-spreads. I'd much rather be in a long delta fly and pay the wing-skew to earn on the strips as the mkt rallies. It doesn't take any skill to sell an OTM put, but it takes quite a bit to sell the put and buy the call.
How can you buy the call if you haven't sold the put!? Pink Floyd were they option traders. Old joke.
Quote from atticus:
I thought you were referring to long b-spreads, not short. Sure, I am a gunslinger and love to short the stuff. As much as I love to short vol I hate short b-spreads. I'd much rather be in a long delta fly and pay the wing-skew to earn on the strips as the mkt rallies. It doesn't take any skill to sell an OTM put, but it takes quite a bit to sell the put and buy the call.
How can you buy the call if you haven't sold the put!? Pink Floyd were they option traders. Old joke.
Isn't a short 1 ATM put and buying an 1 OTM put(to protect against an 87 type crash) a short vol play in a dollar basis?
NOK May 2019 yielding 9.31%
http://www.elitetrader.com/vb/showthread.php?s=&postid=3557906#post3557906
http://www.elitetrader.com/vb/showthread.php?s=&postid=3557906#post3557906
Been reading some studies to build more confidence in my short trading in these sorts of stocks
Heres 2 interesting ones:
http://kuznets.fas.harvard.edu/~campbell/papers/campbellhilscherszilagyi_jf2008.pdf
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1189805
The first finds that stocks that are likely to be bankrupt(according to predictive model the authors invented) have really poor stock returns
The second finds that companies that are likely to fail(their definition of failure is delisting due lack of performance in different areas) earn very good stock returns
So what do make of this?the key there is the difference in definition, the first study(along with other studies that are similar that I haven't read) look at really bad companies that are likely going to bankrupt, in this situation it seems that there is an edge. The authors speculate the reasons for it
I agree with a few of them
1 - Prospect theory, the fact the returns are skewed to the positive gives a lottery ticket effect to these stocks, which leads to mispricings due human errors
2 - Little or analyst coverage, institutional ownership, illiquidity and difficulty shorting makes those mispricings not go away easily
The 2nd study since it has a broader definition of failure doesn't capture those effects. Being delisted due performance reasons seems to encapsulate more 'corporate uncertainty', that is business that are going to transformations, tough periods, management suspicion etc. In that case its not surprising that are good returns in the stocks. Its just not horrible enough that people's denial could lead to mispricings and hopes/dreams, in this case its just bad and people tend to sell the stocks to bellow their fair values leading to excess returns for longs
At least this has been my interpretation of the studies
Heres 2 interesting ones:
http://kuznets.fas.harvard.edu/~campbell/papers/campbellhilscherszilagyi_jf2008.pdf
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1189805
The first finds that stocks that are likely to be bankrupt(according to predictive model the authors invented) have really poor stock returns
The second finds that companies that are likely to fail(their definition of failure is delisting due lack of performance in different areas) earn very good stock returns
So what do make of this?the key there is the difference in definition, the first study(along with other studies that are similar that I haven't read) look at really bad companies that are likely going to bankrupt, in this situation it seems that there is an edge. The authors speculate the reasons for it
I agree with a few of them
1 - Prospect theory, the fact the returns are skewed to the positive gives a lottery ticket effect to these stocks, which leads to mispricings due human errors
2 - Little or analyst coverage, institutional ownership, illiquidity and difficulty shorting makes those mispricings not go away easily
The 2nd study since it has a broader definition of failure doesn't capture those effects. Being delisted due performance reasons seems to encapsulate more 'corporate uncertainty', that is business that are going to transformations, tough periods, management suspicion etc. In that case its not surprising that are good returns in the stocks. Its just not horrible enough that people's denial could lead to mispricings and hopes/dreams, in this case its just bad and people tend to sell the stocks to bellow their fair values leading to excess returns for longs
At least this has been my interpretation of the studies