7 ms·

I, Who Vowed to Never-Ever Short Stocks Again, Just Shorted the Entire Market

50 points by SQL2219 7y ago

itsthecourier 7y ago
I always remember Ray Dalio's biggest fuck up short a market too early. Market can be unreasonably way longer than we can remain solvent. Good luck OP
dotcom4 7y ago
you really think it's time?
PhantomGremlin 7y ago
I like his approach. He sold short SPY and QQQ. Those are very liquid and he will have no problem being able to cover if the market moves against him. He's not shorting individual stocks. I just did something similar. I bought puts on both SPY and QQQ. As the author notes, I had to pay a put premium. I will exit quickly if the market continues to go up at the beginning of the new year. There is one advantage to buying puts instead of shorting. If the price of puts (the implied volatility) goes up, the put becomes a leveraged bet. A put can go up in value even if the market goes sideways. Of course that is just short term, longer term there are many other factors such as time decay involved.
- downrightmike 7y ago
  The latest round of repo injection will go until mid january. And the Fed is going to continue doing QE through April.
  - chii 7y ago
    > repo injection i have not understood what the repo market is - anyone care to give a laymen's explanation?
    - JamesLeonis 7y ago
      It's basically short-term lending market. Think overnight, or within a couple of weeks, as the loan terms. The full name is Repossession Market, since it acts like a giant pawn shop. You walk in with some collateral, and walk out with cash and a promise to repay a little more to get your stuff back. Recent events have caused cash lenders to step back, so the Fed has been lending (more and more...) over the last couple of months. Why? Probably better to not look too closely at that Leviathan, citizen!
- blackrock 7y ago
  As much as I would like to buy a put, the timing is hard to get right. The decay of the option will make your derivative expire worthless. And then, the next month, the market will fall as you predicted, but you lost your money on that option. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. But as they say, the market will stay irrational, longer than you can stay solvent.
  - PhantomGremlin 7y ago
    the timing is hard to get right Yes the timing is tricky and decay is a bitch. My thesis is that the market will begin to drop in January. Perhaps as soon as January 2. The puts are to protect my portfolio from that scenario. If the market doesn't drop I will quickly blow out of my put options. The time decay over a few days or even weeks on a 90 day option isn't that significant. Of more concern is that the price of a put will decline if the market continues to move up away from the strike price. It's a double whammy because, as a market moves up, the inherent cost of options (the implied volatility) usually goes down as well. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. Yes it's foolish to keep rolling put options in a rising market. You must use them tactically for when you expect an inflection point might soon be at hand. You can also use put options for more practical reasons. E.g. in my case I need to periodically sell stocks because I have tuition to pay for my daughter currently in college. Two scenarios: 1) stay in the market, buy puts, lose some of the upside because of cost of puts. 2) sell stock now against future tuition needs, lose all of the upside.
    - blackrock 7y ago
      Good luck! The market tends to crash right after everyone is exuberant and claiming that it'll go up forever. Then, the adults come into the room, and pull the rug from under them. Then these same people start seeing red and cry that the world is going to fall apart. They completely forget that their previous stance was that the market would go up forever. On a side note, some people think that they could've timed the Big Short of 2008. If only they had bought a Put. Or go naked, and short the SPY stock directly. But from my analysis, this was an impossibility. At least to a normal trader. There were just too many fake-outs, too many dead-cat bounces, that the likelihood of you fulfilling your original trading thesis, is nil. The whole thing took place over a 12 month span, which is far too long to execute a derivative trade. So, you would have to short the stock naked, and hold it for 12 months, and hope and pray that your thesis was correct. But, you can only borrow so much money, thus the benefit of such a trade, was not worth the risk. If you made any money, then it would be a rounding error. Now, if you had insider information (especially on when critical actions were being taken by the government and key players), and if you have significant financial resources, then that might be a different game. And you would've benefited significantly from that once-in-a-lifetime trade. But for the rest of us normal folks, shorting the market in 2008 was impossible. Anyways, good luck! This market needs to correct. The bigger they are, the harder they fall. This QE insanity has impoverished us all. Except for the rich elites. They're like vampires that suck on the souls of the poor unwashed masses, and the middle class that hopes to be rich like them but never will, and laugh at us all, as they lounge around on their 3rd yacht.
- turk73 7y ago
  I'm going to tell you your future: You're going to lose money on those puts. I know it's hard to face, but the markets as you know them don't exist. The algos own them. There are programs that watch every trade coming from any place where retail traders, such as yourself, can buy and sell from. Those trades are front-run on both ends and endlessly fucked with. That includes options and futures. You're going to get fucked because they are designed for that very exact purpose. You don't believe me but it is a fact. I've seen algos run prices up and down just to stop out a single retail trader. They know everything. The know if you have stops or not, they know your psychology, and unlike you, they have a plan of how they are going to manipulate the bid in order to screw you over. And it costs them practically nothing to do it. You should not fuck around with this stuff. Just accept that it is rigged. By the way, the guys in the Big Short who did win nearly didn't--Burry's investors tried to pull out and he was getting sued to allow them to bail out of his strategy. Once he won, he didn't win because the firms he bought the CDOs from refused to pay. He had to sue them to get his money, which he eventually did. Point being, if you think you are going to "go short" and win, you are a fool.
konschubert 7y ago
When the rich get richer, and the poor don’t, one can expect that prices rise for things that rich people buy (stocks), but not for things that poor people buy (food, gasoline, rent). Yet the latter are the kind of items used to measure inflation. Maybe stocks aren’t really getting over-valued, maybe it’s the dollar that’s getting de-valued. Quantitative Easing. What I am trying to say is that I’m not confident that a correction is imminent.
- ncmncm 7y ago
  I think we can be confident that the current administration will do everything in its power to detach the measuring instruments from the actual economy in order to present a rosy picture. The effect will be a much more resounding crash when the facts cannot be papered over anymore. So the only question is, how long can they be papered over? How long were they successfully papered over before the last blowup?
  - afinlayson 7y ago
    "So the only question is, how long can they be papered over?" I know that one. Nov 4th 2020... Once they get re-elected, they don't care what happens... especially since Impeachment won't matter anymore and the 40% that love him don't care what he does. I hope everyone on here who can vote, does.
    - ncmncm 7y ago
      I guess you weren't paying attention in 2008 when the economy blew up six months before the election? They don't always succeed in dancing fast enough, especially when they have driven away all the grownups who understand how anything works, or care.
    - Fjolsvith 7y ago
      Divisive, nasty, flame-bait post not flagged because it is anti conservative.
      - 7y ago
djaouen 7y ago
This type of speculation is irresponsible. Does he expect us to sell and short the market, too?
- ncmncm 7y ago
  He specifically stated, in so many words, that he doesn't.
nine_zeros 7y ago
The US stock market appears to be directly correlated to the amount of money the FED prints. With the current QE, there will be more dollars printed. I'm not holding my breath. However, day-to-day workers and young people will be destroyed by this asset inflation.
- technics256 7y ago
  How will they be destroyed?
  - Terretta 7y ago
    I think the idea is that their cash flow is constricting relative to assets they would need/want buy to establish their place in the world.
  - nine_zeros 7y ago
    By simply spending too much of their income to buy said overpriced assets
ksec 7y ago
>Mega-weight in the indices, Apple, is a good example: shares soared 84% in the year, though its revenues ticked up only 2%. This is not a growth story. This is an exuberance story where nothing that happens in reality – such as lacking revenue growth – matters, as we’re now told by enthusiastic crowds everywhere. I nearly stopped reading after this. In hindsight I should have done exactly just that. Despite that ridiculous 83% growth, Apple's P/E is only just inline with S&P average at 24. With high amount of Net Cash. It is basically the market buying into Services and Finally admit Apple is not dead, and wont be any time soon. ( But the stock is now used to manipulate the wider indices ) And in the Tesla and GM example, it is simply Tesla was one of the stock trading at very high vs GM trading low. At the current growth rate and tension between China, may be a P/E of 24 is a little optimistic, but they are by no means a bubble. The first sentence in the article: In my decades of looking at the stock market Bubbles happen when everyone in the market is stupid. Stupidly believe nothing could go wrong. Housing wont fall, Stock will go up. I dont see any of these at all. It seems to me investors are still very cautious, and talk about the 2008 crisis as something happened a few years before, when it has been 12 years now. The only risk I see right now is China. Simply because the market is so opaque we have no idea what is really going on.
- elfexec 7y ago
  > Bubbles happen when everyone in the market is stupid. No. Bubbles happen when interest rates are low or via other mechanisms ( QE, etc ) excess capital is created. > Stupidly believe nothing could go wrong. No. This is just standard nonsense we teach entry level financial analysts who know nothing or something the business news parrots. The "stupid" masses don't create bubbles. The highly "intelligent" financial masters do - FED/banks with the help of politicians and media. > The only risk I see right now is China. Simply because the market is so opaque we have no idea what is really going on. Another one of these. Once again, somebody has to link china with something that really has nothing to do with china. Also, the chinese markets aren't any more "opaque" than any other markets. Really, you have no idea what's going on there? I thought china was collapsing because of all the "ghost cities"? The anti-china crowd is so hilarious. On the one hand, china is a risk because we know exactly what's happening there. On the the other hand, china is a risk because they are "opaque" and we have no idea what's happening there. Sometimes it's hard to tell whether these comments are from propagandists or those mindlessly parroting the propaganda. But in the meantime, people who know nothing will argue about silly nonsense PE, EPS, Beta, etc. There is a bubble because the big boys want there to be a bubble. APPL rose 84% because the big boys wanted it to. The bubble will pop and there will be a recession when the big boys decide. "I nearly stopped reading after this. In hindsight I should have done exactly just that.". Amen to that. Should be the HN motto.
smabie 7y ago
Maybe as a retail trader, shorting has a bad risk premium. But in general, people short for only one reason: to gain leverage and reduce volatility. A hedge fund might go %100 long and 30% short for a gross exposure of 130%, gaining both leverage and reducing volatility (which they use to net risk premium through leverage). Or if you’re a quant, you use shorts to make your portfolio market neutral. While a fund might short SPY or QQQ in order to hedge a long position, I don’t think an acute investor would take on a short position of the entire market in order to make a directional play on beta. There are a couple reasons for this: 1. If you’re positive the market is going to crash in a specified point in time, you would want to be more aggressive and buy some puts or vix futures. 2. Beta almost always has positive returns and betting on entire market crashing is almost impossible. You would need to be very confident for it to mathematically make sense, and if you were that confident, you might as well go big or go home (using vix futures, etc). 3. Negative beta exposure historically has been a very bad investment philosophy. While it can make sense to hedge market crashes (though not as often as you would think, puts as portfolio insurance are almost always a bad deal), I don’t think it makes sense to actually try and make money off of it. Either you hedge out all market risk or you take on some market risk. It’s a suckers game to try and profit from negative beta. Some other stuff he says is suspect too. Saying that Tesla can’t crash because the short-sellers will always take profits is a strange thing to say. It’s like saying a stock with a lot of long-interest can’t go up because investors will always take profits: historically untrue.

50 points by SQL2219 7y ago

I always remember Ray Dalio's biggest fuck up short a market too early. Market can be unreasonably way longer than we can remain solvent. Good luck OP

dotcom4 7y ago

you really think it's time?

PhantomGremlin 7y ago

I like his approach. He sold short SPY and QQQ. Those are very liquid and he will have no problem being able to cover if the market moves against him. He's not shorting individual stocks. I just did something similar. I bought puts on both SPY and QQQ. As the author notes, I had to pay a put premium. I will exit quickly if the market continues to go up at the beginning of the new year. There is one advantage to buying puts instead of shorting. If the price of puts (the implied volatility) goes up, the put becomes a leveraged bet. A put can go up in value even if the market goes sideways. Of course that is just short term, longer term there are many other factors such as time decay involved.

downrightmike 7y ago
The latest round of repo injection will go until mid january. And the Fed is going to continue doing QE through April.
- chii 7y ago
  > repo injection i have not understood what the repo market is - anyone care to give a laymen's explanation?
  - JamesLeonis 7y ago
    It's basically short-term lending market. Think overnight, or within a couple of weeks, as the loan terms. The full name is Repossession Market, since it acts like a giant pawn shop. You walk in with some collateral, and walk out with cash and a promise to repay a little more to get your stuff back. Recent events have caused cash lenders to step back, so the Fed has been lending (more and more...) over the last couple of months. Why? Probably better to not look too closely at that Leviathan, citizen!
blackrock 7y ago
As much as I would like to buy a put, the timing is hard to get right. The decay of the option will make your derivative expire worthless. And then, the next month, the market will fall as you predicted, but you lost your money on that option. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. But as they say, the market will stay irrational, longer than you can stay solvent.
- PhantomGremlin 7y ago
  the timing is hard to get right Yes the timing is tricky and decay is a bitch. My thesis is that the market will begin to drop in January. Perhaps as soon as January 2. The puts are to protect my portfolio from that scenario. If the market doesn't drop I will quickly blow out of my put options. The time decay over a few days or even weeks on a 90 day option isn't that significant. Of more concern is that the price of a put will decline if the market continues to move up away from the strike price. It's a double whammy because, as a market moves up, the inherent cost of options (the implied volatility) usually goes down as well. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. Yes it's foolish to keep rolling put options in a rising market. You must use them tactically for when you expect an inflection point might soon be at hand. You can also use put options for more practical reasons. E.g. in my case I need to periodically sell stocks because I have tuition to pay for my daughter currently in college. Two scenarios: 1) stay in the market, buy puts, lose some of the upside because of cost of puts. 2) sell stock now against future tuition needs, lose all of the upside.
  - blackrock 7y ago
    Good luck! The market tends to crash right after everyone is exuberant and claiming that it'll go up forever. Then, the adults come into the room, and pull the rug from under them. Then these same people start seeing red and cry that the world is going to fall apart. They completely forget that their previous stance was that the market would go up forever. On a side note, some people think that they could've timed the Big Short of 2008. If only they had bought a Put. Or go naked, and short the SPY stock directly. But from my analysis, this was an impossibility. At least to a normal trader. There were just too many fake-outs, too many dead-cat bounces, that the likelihood of you fulfilling your original trading thesis, is nil. The whole thing took place over a 12 month span, which is far too long to execute a derivative trade. So, you would have to short the stock naked, and hold it for 12 months, and hope and pray that your thesis was correct. But, you can only borrow so much money, thus the benefit of such a trade, was not worth the risk. If you made any money, then it would be a rounding error. Now, if you had insider information (especially on when critical actions were being taken by the government and key players), and if you have significant financial resources, then that might be a different game. And you would've benefited significantly from that once-in-a-lifetime trade. But for the rest of us normal folks, shorting the market in 2008 was impossible. Anyways, good luck! This market needs to correct. The bigger they are, the harder they fall. This QE insanity has impoverished us all. Except for the rich elites. They're like vampires that suck on the souls of the poor unwashed masses, and the middle class that hopes to be rich like them but never will, and laugh at us all, as they lounge around on their 3rd yacht.
turk73 7y ago
I'm going to tell you your future: You're going to lose money on those puts. I know it's hard to face, but the markets as you know them don't exist. The algos own them. There are programs that watch every trade coming from any place where retail traders, such as yourself, can buy and sell from. Those trades are front-run on both ends and endlessly fucked with. That includes options and futures. You're going to get fucked because they are designed for that very exact purpose. You don't believe me but it is a fact. I've seen algos run prices up and down just to stop out a single retail trader. They know everything. The know if you have stops or not, they know your psychology, and unlike you, they have a plan of how they are going to manipulate the bid in order to screw you over. And it costs them practically nothing to do it. You should not fuck around with this stuff. Just accept that it is rigged. By the way, the guys in the Big Short who did win nearly didn't--Burry's investors tried to pull out and he was getting sued to allow them to bail out of his strategy. Once he won, he didn't win because the firms he bought the CDOs from refused to pay. He had to sue them to get his money, which he eventually did. Point being, if you think you are going to "go short" and win, you are a fool.

konschubert 7y ago

When the rich get richer, and the poor don’t, one can expect that prices rise for things that rich people buy (stocks), but not for things that poor people buy (food, gasoline, rent). Yet the latter are the kind of items used to measure inflation. Maybe stocks aren’t really getting over-valued, maybe it’s the dollar that’s getting de-valued. Quantitative Easing. What I am trying to say is that I’m not confident that a correction is imminent.

ncmncm 7y ago
I think we can be confident that the current administration will do everything in its power to detach the measuring instruments from the actual economy in order to present a rosy picture. The effect will be a much more resounding crash when the facts cannot be papered over anymore. So the only question is, how long can they be papered over? How long were they successfully papered over before the last blowup?
- afinlayson 7y ago
  "So the only question is, how long can they be papered over?" I know that one. Nov 4th 2020... Once they get re-elected, they don't care what happens... especially since Impeachment won't matter anymore and the 40% that love him don't care what he does. I hope everyone on here who can vote, does.
  - ncmncm 7y ago
    I guess you weren't paying attention in 2008 when the economy blew up six months before the election? They don't always succeed in dancing fast enough, especially when they have driven away all the grownups who understand how anything works, or care.
  - Fjolsvith 7y ago
    Divisive, nasty, flame-bait post not flagged because it is anti conservative.
    - 7y ago

djaouen 7y ago

This type of speculation is irresponsible. Does he expect us to sell and short the market, too?

ncmncm 7y ago
He specifically stated, in so many words, that he doesn't.

nine_zeros 7y ago

The US stock market appears to be directly correlated to the amount of money the FED prints. With the current QE, there will be more dollars printed. I'm not holding my breath. However, day-to-day workers and young people will be destroyed by this asset inflation.

technics256 7y ago
How will they be destroyed?
- Terretta 7y ago
  I think the idea is that their cash flow is constricting relative to assets they would need/want buy to establish their place in the world.
- nine_zeros 7y ago
  By simply spending too much of their income to buy said overpriced assets

ksec 7y ago

>Mega-weight in the indices, Apple, is a good example: shares soared 84% in the year, though its revenues ticked up only 2%. This is not a growth story. This is an exuberance story where nothing that happens in reality – such as lacking revenue growth – matters, as we’re now told by enthusiastic crowds everywhere. I nearly stopped reading after this. In hindsight I should have done exactly just that. Despite that ridiculous 83% growth, Apple's P/E is only just inline with S&P average at 24. With high amount of Net Cash. It is basically the market buying into Services and Finally admit Apple is not dead, and wont be any time soon. ( But the stock is now used to manipulate the wider indices ) And in the Tesla and GM example, it is simply Tesla was one of the stock trading at very high vs GM trading low. At the current growth rate and tension between China, may be a P/E of 24 is a little optimistic, but they are by no means a bubble. The first sentence in the article: In my decades of looking at the stock market Bubbles happen when everyone in the market is stupid. Stupidly believe nothing could go wrong. Housing wont fall, Stock will go up. I dont see any of these at all. It seems to me investors are still very cautious, and talk about the 2008 crisis as something happened a few years before, when it has been 12 years now. The only risk I see right now is China. Simply because the market is so opaque we have no idea what is really going on.

elfexec 7y ago
> Bubbles happen when everyone in the market is stupid. No. Bubbles happen when interest rates are low or via other mechanisms ( QE, etc ) excess capital is created. > Stupidly believe nothing could go wrong. No. This is just standard nonsense we teach entry level financial analysts who know nothing or something the business news parrots. The "stupid" masses don't create bubbles. The highly "intelligent" financial masters do - FED/banks with the help of politicians and media. > The only risk I see right now is China. Simply because the market is so opaque we have no idea what is really going on. Another one of these. Once again, somebody has to link china with something that really has nothing to do with china. Also, the chinese markets aren't any more "opaque" than any other markets. Really, you have no idea what's going on there? I thought china was collapsing because of all the "ghost cities"? The anti-china crowd is so hilarious. On the one hand, china is a risk because we know exactly what's happening there. On the the other hand, china is a risk because they are "opaque" and we have no idea what's happening there. Sometimes it's hard to tell whether these comments are from propagandists or those mindlessly parroting the propaganda. But in the meantime, people who know nothing will argue about silly nonsense PE, EPS, Beta, etc. There is a bubble because the big boys want there to be a bubble. APPL rose 84% because the big boys wanted it to. The bubble will pop and there will be a recession when the big boys decide. "I nearly stopped reading after this. In hindsight I should have done exactly just that.". Amen to that. Should be the HN motto.

smabie 7y ago

Maybe as a retail trader, shorting has a bad risk premium. But in general, people short for only one reason: to gain leverage and reduce volatility. A hedge fund might go %100 long and 30% short for a gross exposure of 130%, gaining both leverage and reducing volatility (which they use to net risk premium through leverage). Or if you’re a quant, you use shorts to make your portfolio market neutral. While a fund might short SPY or QQQ in order to hedge a long position, I don’t think an acute investor would take on a short position of the entire market in order to make a directional play on beta. There are a couple reasons for this: 1. If you’re positive the market is going to crash in a specified point in time, you would want to be more aggressive and buy some puts or vix futures. 2. Beta almost always has positive returns and betting on entire market crashing is almost impossible. You would need to be very confident for it to mathematically make sense, and if you were that confident, you might as well go big or go home (using vix futures, etc). 3. Negative beta exposure historically has been a very bad investment philosophy. While it can make sense to hedge market crashes (though not as often as you would think, puts as portfolio insurance are almost always a bad deal), I don’t think it makes sense to actually try and make money off of it. Either you hedge out all market risk or you take on some market risk. It’s a suckers game to try and profit from negative beta. Some other stuff he says is suspect too. Saying that Tesla can’t crash because the short-sellers will always take profits is a strange thing to say. It’s like saying a stock with a lot of long-interest can’t go up because investors will always take profits: historically untrue.