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No - dollar neutral. Delta neutral is an entirely separate concept. I'm talking about equities trading (or potentially total return swaps) not options or other
by hendzen 8y ago
No - dollar neutral. Delta neutral is an entirely separate concept. I'm talking about equities trading (or potentially total return swaps) not options or other derivatives.
Why do you think its so difficult and expensive to attain? What do you think institutional borrow costs are? And I'm not talking about Interactive Brokers... I'd wager that most funds are long biased because its more difficult to generate short alpha - not because of the costs of portfolio construction.
- JumpCrisscross 8y agoStock borrow is expensive. More problematically, dollar neutral doesn’t necessarily mean beta neutral (which is the same thing as delta neutral with respect to a broad-market index).
- hendzen 8y agoSure, I alluded to the concept of beta neutral when I mentioned 'additional constraints' - dollar neutral was a simpler concept I used for a non-finance audience. I've never heard anybody use the term delta neutral outside of derivatives trading. For the vast majority of symbols, stock borrow is cheap at institutional size.
- JumpCrisscross 8y ago> For the vast majority of symbols, stock borrow is cheap at institutional size Stock borrow costs vary from symbol to symbol. The ones you want tend to be the ones you pay for. Moreover, cheap doesn't mean free. Shorting half of one's portfolio is rancidity expensive compared to buying some puts. Even that is pretty expensive for total hedging purposes. At the end of the day, most long-short funds are not market neutral. The ones that are operate on minuscule time horizons, and are better categorized as shadow market makers than funds. (Both in their operation and fundraising mechanics, the short-term traders tending to be more likely to deploy permanent--versus limited--capital.)