Considering short positions

[usedcasting]

David, it looks like you have decided to go at shorting, I have to say I do agree with 1reilly on his/her feeling about it but things are evolving. All the very best with it. One thing I would like to request, I see some others are hoping as well, that you would keep it a separate forum (3shortsonfire). I don't know if you feel that it would be right, but it would help us that are not getting involved to keep track of your gains and loses on the long side. As with most people here I do not trade all the same trades you do, and its always nice to come back and see how lousy I did in comparison to how well you did. Adding shorts to that 3sof will make it impossible to do that.

Just my thoughts.
Anyway, still love the site

Good trading all!

[1reilly]

David since it appears you will be using shorts is it possible to offer a put suggestion in tandom. This would allow many of your subscribers an alternative way to participate if they are prohibited or can't borrow the stock. Using eliteG's example of UNTD one might look at the Nov 15 put trading at 1.85. The stock at 13.47 has the put 1.47 in the money. Since most of your trades are short term I am using the Nov.s . Should the stock move to his target of 12 the put should trade at 3. Just a thought, most will qualify for put and call buying, and be able to use your expertise and also have a limited risk. Many of your seasoned traders may bundle the actual short with the put. Hope everyone has success.( Note all options carry a premium and must be factored into your trade. It's what you pay for some safety net and the leverage)
Mike

[Irishman]

It's always a good idea to at least be mindful of someone's opinion who has had professional experience. I myself was a Commodities Broker for a number of years and in that position we used all trading methods at our disposal; Long, Short, Options, Futures contracts and so on and so forth. But we have many inexperienced traders in this community and I firmly believe it will be much easier to teach them how to short as opposed to trying to teach them about options, which, of course, are a much more complicated scenario.
I think we must always bear in mind what's best for the WHOLE of the community.  Those who have enough experience to take on something such as Options are certainly capable of doing so on their own. All the best.
Irish

[eliteG]

thats an interesting idea on the put 1rielly    I swear that day I put up UNTD I first put in TRLG(then thought it was too risky for a first short).. 10% down the next day.  mannn

anyway I have a theory on trying anything new.  You can have somebody tell you every little detail and risk but you gotta try it yourself.  Try it very small and get out as soon as you feel uneasy.  Research what happened.  Try again.  Ramp up the positions if you get a feel.

[1reilly]

eliteG and Irishman
I agree with both you on your related points. I am here because many of you remind me of the great experiences I had working around people who were always searching for some Gem in the market place and then shared that idea. The discussion about shorts should take place and I want to see all of the potential trades our members are thinking about. Each one of us will filter out the trades we feel don't fit our investment criteria. I'm personally short 6 positions. I think David has a bearish environment and a long public portfolio and that restriction frustrates his desire to make his community money. My comments were made because many subscribers may not be able to participate on the sell side of this market. Irishman you are right that the option market has many intricate possiblities. However, if David decides to short XYZ then by showing the put alternative allows everyone the chance to participate. A subscriber simply buys the put as he does a stock. He would then just follow Davids guidance regarding exit levels. For many the regulatory guidelines will be easier to participate. Finally, my initial reaction to David adding shorts to his public portfolio was probably too narrow and too conservative. Hopefully my discussion will cause the members to tread very carefully related to the sell side, sit down and talk to a professional about their risk profile, learn all they can and then strickly follow David's exit strategy. Good luck to all, I look forward to all recs in all sectors. Soon I will be able to post some of my ideas, which recently have stunk. Thank goodness I'm restricted you would have thrown me out of this community.

[trader567]

Ok... Here's my take on this whole shorting issue:

The folks who are expressing concern regarding this idea fail to acknowledge one thing.  They fail to acknowledge the weight that the general market puts on individual stocks. 

An individual can spend days researching companies and analyzing stock charts, but if he ignores the general market trend, doubtless he will lose.

Trading is a game of probabilities.  All your research and analysis does is help you be on the more likely side.  Inevitably, you will be wrong many times, and will have to exit positions.

Yes any random company may be exceptionally strong and buck the general trend.  The trouble is, you have no way of knowing whether you've found that company.  Even good stories get pulled down or at least tempered with the market.

The result of what I'm telling you here is that the first analysis before any trading must be: Is the general market trend up, down, or neutral?

From a fundamental standpoint, we also have expectations of whether this trend will change in the near future.

If the general market trend is bullish and is expected to stay that way, we should be looking for long opportunities because chances are we'll get the most bang for our buck in that type of market environment.

If the general market trend is bearish, we must spend our time looking for short candidates because probability says that is how we will maximize our trading profits.

If the market is sideways, obviously there is no particular bias, and both shorts and longs have equal probabilities.

By looking for long stories in a badly trending market, we will be putting ourselves at a disadvantage.  As others have said, the smartest alternative to shorting in a down market is staying in cash.

[SmartWrasse]

Many who write books on options and try to sell their advice on options often say you should buy puts instead because of the unlimited risk in shorting.  Yesterday from Optionetics.com

A far better way to accomplish the same type of objective is to just purchase a straight put or implement a bear call spread position. This is much better than actually short selling stock because you have limited risk versus unlimited risk and you can still profit from a decline in the stock price. In addition, the trader is not subject to any unwanted margin calls should the position go against them.

Depends on the stock, but I don't agree with the risk assesment.  No way would I consider shorting SVA or similar small cap rockets.  Most stocks don't move this much.  One thing you can be sure of is the TIME LIMIT ON OPTIONS.  If your timing is bad, you lose it all.  It also seems that stocks with many open option contracts are manipulated so the contracts expire worthless 

[Lucas Scott]

I'd much rather short than buy puts. Shorts only have unlimited risk if you don't use stops. I find it easy to put stop on short positions -- way easier than on long positions. When I'm long a stock, I worry about the MM's manipulating the share price to "take out the stops."  This has happened to me far too often. I don't worry about MM manipulation on short positions because you don't often see them manipulate a price upwards.

As for put options.... with the premium you pay to buy a put plus the expiration plus the general tendency of markets to rise over time, I don't like puts. Has anyone heard of Optiontradershq.com (OTHQ)? It was a subscription service that started around the same time as 3SoF. The service was dedicated to buying naked put and call options. The service is no longer in operation. The jackass who ran it went all in on put options in late spring as the markets were coming off a bottom. By the end of summer the OTHQ portfolio was down 80% OTHQ no longer exists. Lesson to be learned: Buying naked options is risky!

[AussieTrader]

The jackass who ran it went all in on put options in late spring as the markets were coming off a bottom

Hey Lucas, yeh I am sure I saw your name appear in the OTHQ chat forum (before it got withdrawn, apologies if that is wrong). The problem the guy at OTHQ had was he always wanted to buy Puts (interestingly he did some Calls and made good money), he thought he knew the market would turn and everytime it didn't rather than changing or ammending his approach he just bought more Puts on a new timeframe (always tight timeframe like 2 months, so even if he was right he didn't allow enough time for it to play out before the option got hit by time decay). He was the classic loser in the market chasing and chasing his thought that the market will go his way anyday soon, of course it didn't. You could see clearly the whole thing was imploding and the guy did't want to listen to any friendly inputs regarding his strategy at all.
I belive the guy is still a moderator at a sister trading site to OTHQ.
I hope he is OK.

[Melf Elf]

Good posts about shorting, particularly the cautionary statements about options.  Unless you have a lot of experience, I'd stay out of options completely.

I've been having trouble shorting.  A number of times, I've gotten the message from my broker (Scottrade): "No shares available to short."  Last week, I tried to short the QQQQs (proxy for the NASDAQ 100) and got the message: "Only 173 shares available to short!"  That really surprised me, given that the average daily volume is 101,000,000 shares.

I'm wondering if that isn't a statement about how heavily shorted the market is, but I don't want to infer too much from that.

If you're going to short, I'd suggest using a limit order.  You need an uptick in stocks to get filled on the short side.  You don't, however,  in things like the SPY, but I still use a limit.  Check with your broker about the uptick rule on ETFs...HOLDRS...I don't think you need an uptick on those, but check to be sure. 

Earlier this year, I put in a market order to short a stock that was rallying back to resistance, which is a good place to short.  It was rallying so fast, I figured that I wouldn't have a problem getting filled, and felt that it was alright to go ahead with a market order.  Wrong!

I waited...waited...waited...no confirmation of the trade...waited...waited...the stock got to resistance, then started to tank.  I still wasn't filled, and I had a market order in, meaning that I had to accept whatever price they wanted to give me.  I tried to cancel the order since the stock was dropping so fast, but that didn't work.  I got filled $1.00 below where I "intended" to short the stock, which amounted to about a 3% loss right off the bat (it was a $30+ stock).  So, be aware of that.

Another problem to be aware of...

I was short Alcan Aluminum (AL) in January.  Trade was going beautifully.  It was January 18.  The company had warned after the bell on Friday, January 14, hoping that the market would forget about that during the Martin Luther King holiday on January 17, but the warning wasn't ignored.   AL was down about $3.00 on the day, on a gap down.  Great!

That afternoon, I got an urgent e-mail from my broker, telling me that I had until noon the following day (January 19) to cover my short!  Then my doorbell rang, and a note from my broker arrived by Federal Express, saying the same thing!

What!   

I called my broker, and the upshot was that any time after three days, the broker can force you to cover your short position if they don't have enough stock to cover the number of shares that are shorted.  Must be that "naked short" stuff. 

Since I had a nice profit, I covered at the close on January 18, not wanting to risk a gap-filling rally in the stock by noon the next day, when I would be forced to cover.

You can guess how thrilled I was when AL gapped down almost $5.00 at the open on January 19, hitting my H&S top target after I covered.

Sure makes me think that "somebody knew something," but my point isn't to bemoan the trade.  My point is, be aware that you can be forced to cover your short position after three days, and be aware that you might have a loss in the stock at that time.

That's another argument, too, for trying to stick with shorting very liquid stocks.  Hopefully, your broker will have enough of it on hand, and you won't be forced to cover.

[veteran]

I think shorting stock is a great idea. We could always have some stocks in play for both the upside and downside of the market. That way we can make money both ways. And if the market is bullish or bearish, obviously we will have more plays in that direction.

I would like to see 3Stocks offer as their premium service both a Buy and Short board and eliminate the penny board. Pennies are too dangerous, time consuming and offer little protection: no stops for example. Besides why waste time trying to make money on pennies where there are so many great listed stocks to play.

[David Randolph]

I think shorting stock is a great idea. We could always have some stocks in play for both the upside and downside of the market. That way we can make money both ways. And if the market is bullish or bearish, obviously we will have more plays in that direction.

I would like to see 3Stocks offer as their premium service both a Buy and Short board and eliminate the penny board. Pennies are too dangerous, time consuming and offer little protection: no stops for example. Besides why waste time trying to make money on pennies where there are so many great listed stocks to play.

Thanks for your and others inputs. Expect news on this subject this weekend.

[Dwer]

Hello,
This is my first post, and I would like to congratulate David and Frederick for the genial idea of 3sof.
I would like to see, as mentioned above, a 3ShortsOnFire list. I have a suggestion though, and it is to have an overall list, both of longs and shorts. This is a sound practice, because you'll have your portfolio risk mitigated. Big changes in volatility will not be too damaging for the portfolio because it will be balanced between shorts and longs.

[David Randolph]

Hello,
This is my first post, and I would like to congratulate David and Frederick for the genial idea of 3sof.
I would like to see, as mentioned above, a 3ShortsOnFire list. I have a suggestion though, and it is to have an overall list, both of longs and shorts. This is a sound practice, because you'll have your portfolio risk mitigated. Big changes in volatility will not be too damaging for the portfolio because it will be balanced between shorts and longs.

I agree  Ou melhor, concordo consigo 

Bem-vindo !

[puenthouse]

Shorting VLO
Seeing what happens with this Dilution news