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Theoretically, you could short TSLA in the same amount that you own it within the ETF. This would be functionally equivalent to owning a custom market cap ETF

Theoretically, you could short TSLA in the same amount that you own it within the ETF. This would be functionally equivalent to owning a custom market cap ETF minus TSLA.

kjrfghslkdjfl 2y ago
It's not. If you're shorting, you're paying to borrow the stock.
rafaelmn 2y ago
With the difference that you could get wiped out on the short ? Edit: I was wrong, if ETF has same amount of Tesla it should even out.
- Imustaskforhelp 2y ago
  yea literally my exact thought. Wish there was some better financial instrument for such purpose instead of shorting.
  - dgacmu 2y ago
    But you won't - you "own" an equal number of shares of TSLA indirectly through the index fund. If TSLA goes up, that part of your ETF has gone up. You're just being simultaneously long and short the same stock. The only difference between that and "not owning TSLA" is that you're paying a bit to borrow the shares -- about 0.41% annually, right now.
  - csomar 2y ago
    Options.
- cthor 2y ago
  You can short without tail risk, e.g. buying puts.
  - dist-epoch 2y ago
    A put is not a short replacement. Buying puts is more about longing volatility.
    - fooker 2y ago
      You can simulate a short with multiple options. https://www.optionseducation.org/strategies/all-strategies/synthetic-short-stock https://www.optionseducation.org/strategies/all-strategies/s... This is not quite all the way there, but close enough. Basically, you do something analogous to 1 = 1/2 + 1/4 + 1/8 + ...
    - fny 2y ago
      No. A long strangle is a way to long volatility. With a put, you primarily pay for directionality with hedged upside risk: you don't lose your house if the stock moons. While it's true volatility is a component, that's a side effect of the hedging since your counter party takes on volatility risk.
    - jgalt212 2y ago
      In theory, yes. But when you include hedging costs and taxes, the link becomes less direct. The cleanest way to get long volatility is by purchasing ATM straddles. https://www.investopedia.com/terms/s/straddle.asp https://www.investopedia.com/terms/s/straddle.asp
- whereismyacc 2y ago
  well not if the short matches the amount you hold in tesla stock through the ETF right?
  - rafaelmn 2y ago
    True didn't consider that.
  - eszed 2y ago
    You'd want to have cash on hand to cover your short position or you risk having to sell (potentially a lot of) your ETF to cover, which loses out on future whole-market upside. Still seems risky to me. Or am I thinking about it wrong?
    - whereismyacc 2y ago
      I definitely don't know much about finance, but a short is essentially being obliged to sell a position at a future date, right? You match your short position against the fraction of your ETF which is in TSLA, such that you are obliged to sell in the future exactly as many TSLA shares as you indirectly own through the ETF. This way you do not need cash on hand, because you can sell a portion of your ETF to pay off the short. Theoretically it's not risky because in the scenario that the short becomes expensive, TSLA has gone up the and in turn TSLA has made your ETF appreciate the same amount that you owe due to the short, and vice versa if it goes down.
      - eszed 2y ago
        > TSLA has made your ETF appreciate the same amount That's no guarantee. I mean, yes, the ETF price reflects its proportion of Tesla stock, but the market as a whole might have declined - even in bear markets some individual stocks appreciate. Investing in ETFs is a long-term, counter-cyclical strategy. Dips are when you want to buy ETFs, not when you want to be forced to sell them because you took a short that failed to pay off. If you have to do that then you're not only selling the Tesla within your ETF, but also the future upside of all the other stocks in the fund. Isn't that hugely inefficient? But, I'm not a particularly sophisticated investor, either (thus: ETFs for me), so my intuition may be wrong. Does anyone have some maths to bring to bear on this?
- adastra22 2y ago
  How would that work? You are simultaneously long by the same amount. The ETF would go up by whatever amount you are short.
echelon 2y ago
Don't short a meme stock. Any irrational behavior can continue longer than your solvency. Buy puts to limit your downside, or do some other combination of options trading to prevent unlimited losses.
loeg 2y ago
Can't reply to the dead parent comment (which is lame, it's not stupid or offensive -- just asking how to buy a TSLA-excluded stock index), but: https://news.ycombinator.com/item?id=41246686 https://news.ycombinator.com/item?id=41246686 Direct indexing allows you to go long ~approximately some stock index like SPY, but you can easily exclude specific stocks (like TSLA) without dealing with options or shorts. Would I do this? No. But it's probably one of the better ways to achieve this goal.

Theoretically, you could short TSLA in the same amount that you own it within the ETF. This would be functionally equivalent to owning a custom market cap ETF minus TSLA.

kjrfghslkdjfl 2y ago

It's not. If you're shorting, you're paying to borrow the stock.

rafaelmn 2y ago

With the difference that you could get wiped out on the short ? Edit: I was wrong, if ETF has same amount of Tesla it should even out.

Imustaskforhelp 2y ago
yea literally my exact thought. Wish there was some better financial instrument for such purpose instead of shorting.
- dgacmu 2y ago
  But you won't - you "own" an equal number of shares of TSLA indirectly through the index fund. If TSLA goes up, that part of your ETF has gone up. You're just being simultaneously long and short the same stock. The only difference between that and "not owning TSLA" is that you're paying a bit to borrow the shares -- about 0.41% annually, right now.
- csomar 2y ago
  Options.
cthor 2y ago
You can short without tail risk, e.g. buying puts.
- dist-epoch 2y ago
  A put is not a short replacement. Buying puts is more about longing volatility.
  - fooker 2y ago
    You can simulate a short with multiple options. https://www.optionseducation.org/strategies/all-strategies/synthetic-short-stock https://www.optionseducation.org/strategies/all-strategies/s... This is not quite all the way there, but close enough. Basically, you do something analogous to 1 = 1/2 + 1/4 + 1/8 + ...
  - fny 2y ago
    No. A long strangle is a way to long volatility. With a put, you primarily pay for directionality with hedged upside risk: you don't lose your house if the stock moons. While it's true volatility is a component, that's a side effect of the hedging since your counter party takes on volatility risk.
  - jgalt212 2y ago
    In theory, yes. But when you include hedging costs and taxes, the link becomes less direct. The cleanest way to get long volatility is by purchasing ATM straddles. https://www.investopedia.com/terms/s/straddle.asp https://www.investopedia.com/terms/s/straddle.asp
whereismyacc 2y ago
well not if the short matches the amount you hold in tesla stock through the ETF right?
- rafaelmn 2y ago
  True didn't consider that.
- eszed 2y ago
  You'd want to have cash on hand to cover your short position or you risk having to sell (potentially a lot of) your ETF to cover, which loses out on future whole-market upside. Still seems risky to me. Or am I thinking about it wrong?
  - whereismyacc 2y ago
    I definitely don't know much about finance, but a short is essentially being obliged to sell a position at a future date, right? You match your short position against the fraction of your ETF which is in TSLA, such that you are obliged to sell in the future exactly as many TSLA shares as you indirectly own through the ETF. This way you do not need cash on hand, because you can sell a portion of your ETF to pay off the short. Theoretically it's not risky because in the scenario that the short becomes expensive, TSLA has gone up the and in turn TSLA has made your ETF appreciate the same amount that you owe due to the short, and vice versa if it goes down.
    - eszed 2y ago
      > TSLA has made your ETF appreciate the same amount That's no guarantee. I mean, yes, the ETF price reflects its proportion of Tesla stock, but the market as a whole might have declined - even in bear markets some individual stocks appreciate. Investing in ETFs is a long-term, counter-cyclical strategy. Dips are when you want to buy ETFs, not when you want to be forced to sell them because you took a short that failed to pay off. If you have to do that then you're not only selling the Tesla within your ETF, but also the future upside of all the other stocks in the fund. Isn't that hugely inefficient? But, I'm not a particularly sophisticated investor, either (thus: ETFs for me), so my intuition may be wrong. Does anyone have some maths to bring to bear on this?
adastra22 2y ago
How would that work? You are simultaneously long by the same amount. The ETF would go up by whatever amount you are short.

echelon 2y ago

Don't short a meme stock. Any irrational behavior can continue longer than your solvency. Buy puts to limit your downside, or do some other combination of options trading to prevent unlimited losses.

loeg 2y ago

Can't reply to the dead parent comment (which is lame, it's not stupid or offensive -- just asking how to buy a TSLA-excluded stock index), but: https://news.ycombinator.com/item?id=41246686 https://news.ycombinator.com/item?id=41246686 Direct indexing allows you to go long ~approximately some stock index like SPY, but you can easily exclude specific stocks (like TSLA) without dealing with options or shorts. Would I do this? No. But it's probably one of the better ways to achieve this goal.