I just listened to Mark Spiegel vs. Whitney Tilson discussion over short selling and I'm intrigued by the fact that Whitney decided/was forced to cover after the short trade went against him.
If the 'buy low, sell high' is the (value) investing way to make money, it would be natural to 'sell high, buy low' to be the way to run a short selling operation. Unless investment thesis changes (which it didn't in this case), it seems foolish to realize loss instead of waiting or doubling down.
This implies that short positions should be small so they can be allowed to grow if the trade (initially) goes against short seller.
Another curious aspect is that clearly many short sellers (with allegedly value investing approach) increase they short positions as the stock goes down. For me this is an equivalent of momentum/technical investing - directly against the value approach. I acknowledge that it is somehow different, when a short thesis catalyst appears that drives price down, but if the stock bounces back (as Tesla did numerous times) one can end up with 'sell low, buy high' result.
I just reviewed my trading history with Tesla short:
- I initially shorted by long dated puts and they either expired worthless or a remaining few are 50% off mark-to-market
- the later approach, of scaling the straight short position as TSLA goes up and reducing the short as it goes down was much more successful (and done on a bigger scale)
I'm torn whether to go back to the first approach as everything seems to indicate that the end is near for TSLA. On one hand lots (pun intended) of unsold inventory, Oct 15th '2018 tax-credit guarantee' and now introduction of mid-range M3 indicate quickly drying demand.
As a side note - my suspicion is that mid-range RWD M3 is actually programmatically-limited long-range RWD M3, partially taken from those parking lots to generate cash even at poor or non-existent margins.
My other short - SPY - was sold on avg. at ~290 and covered on avg. at ~286, with a very small position. Therefore it generated only a token profit, but still provided a reassurance during market swings and reduced anxiety created by using margin.
But during a more severe market decline this would hit me with even more rapidly increased long exposure than with just my basic approach of buying the dip and averaging down. And in exchange it is not likely to produce a meaningful profit. So for the time being I will forfeit this and focus on being long. TSLA is the only exception - the entertainment value alone is worth it.
If the 'buy low, sell high' is the (value) investing way to make money, it would be natural to 'sell high, buy low' to be the way to run a short selling operation. Unless investment thesis changes (which it didn't in this case), it seems foolish to realize loss instead of waiting or doubling down.
This implies that short positions should be small so they can be allowed to grow if the trade (initially) goes against short seller.
Another curious aspect is that clearly many short sellers (with allegedly value investing approach) increase they short positions as the stock goes down. For me this is an equivalent of momentum/technical investing - directly against the value approach. I acknowledge that it is somehow different, when a short thesis catalyst appears that drives price down, but if the stock bounces back (as Tesla did numerous times) one can end up with 'sell low, buy high' result.
I just reviewed my trading history with Tesla short:
- I initially shorted by long dated puts and they either expired worthless or a remaining few are 50% off mark-to-market
- the later approach, of scaling the straight short position as TSLA goes up and reducing the short as it goes down was much more successful (and done on a bigger scale)
I'm torn whether to go back to the first approach as everything seems to indicate that the end is near for TSLA. On one hand lots (pun intended) of unsold inventory, Oct 15th '2018 tax-credit guarantee' and now introduction of mid-range M3 indicate quickly drying demand.
As a side note - my suspicion is that mid-range RWD M3 is actually programmatically-limited long-range RWD M3, partially taken from those parking lots to generate cash even at poor or non-existent margins.
My other short - SPY - was sold on avg. at ~290 and covered on avg. at ~286, with a very small position. Therefore it generated only a token profit, but still provided a reassurance during market swings and reduced anxiety created by using margin.
But during a more severe market decline this would hit me with even more rapidly increased long exposure than with just my basic approach of buying the dip and averaging down. And in exchange it is not likely to produce a meaningful profit. So for the time being I will forfeit this and focus on being long. TSLA is the only exception - the entertainment value alone is worth it.
1 comment:
What do you think are the chances that Apple buys Tesla?
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