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The Short-Only Strategy

Kaushik and I were talking today about how nice it would be to have a short-only fund or even a short-bias fund. Something that made money on stocks going down in value. This has existed for decades in the U.S. Dana Galante, who ran a short-only fund, was even interviewed in the now-famous Market Wizards series of books by Jack Schwager.

Why can’t we have a short-only fund in India? Of course, one might think, the idea of short selling can’t be quite exciting in a bull run? But there are always short opportunities, both technically and fundamentally. Even in a long term bull run, there are times when it’s more lucrative to short.

I had posted a few negative calls – Exit I.T., short ICICI, short the broad market and even the short Tata Steel which didn’t work. I’ve made money shorting – not quite as much as I have on the long side but everything counts.

So I’m going to start a Short Only Strategy – I’ll call it S.O.S. (Short Only Strategy) since this is not a real fund. Fundas:

  • Short stocks, long puts or short calls.
  • It will only involve indices or stocks that have futures on them
  • The nominal amount will be Rs. 50 lakhs. It’s funny money.
  • The closing price of the future will be taken. Nothing intraday.
  • I will put this stuff in a shared document that we can all see and learn.

Note that given that I don’t trade discretionary anymore, these may or may not reflect the positions in my automated strategies. The stuff I mention here will have a reason to short, which may be fundamental or technical – my personal holdings may be different as my systems may generate different calls.

As always these are not recommendations. This is time-pass. If it works well I might consider taking it to another level. If it’s not, well, it’s education. But you shouldn’t pay for my education so: Do Not Short Based On What I Say Here

So where do I start? Uhem. Nothing right now. Another post to start it all.

Update 20/8/08: I have now put the portfolio in a separate page – click here to see it.

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