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.