Are you ever worried about short squeeze when shorting awful companies? Or about possible buy out or some other good news completely destroying your position Any strategy to hedge this kind of event? Thank you
Don't fear short squeeze or long squeeze. just trade based on what you see on your chart. Just trade with the trend. uptrend - long it downtrend - short it if you are overwhelmed by fear, or if you are unable to analyze the trend properly, do not trade at all. you need confidence, not fear, to trade well.
Hedge with options on the same underlying. And keep your position small. Or a safer strategy is like @Robert Morse said, long puts on the stock.
right Robert.... long puts good idea esp for swings i never swing trade short stocks bc of unlimited risk if, longshot, the company gets a buyout offer; or good news ... etfs may be less risky since they never have major gaps
For me, it is not just the limited risk of a long put that works better to me but for most retail clients, the cost to carry short positions over a period of time is likely more than is priced into a ITM put that a market maker prices in and the long put avoid the buy-in risk from a stock becoming a threshold stock.
In past done more against the major trend and over hedge, make sure dividends wouldn't be an issue. Developed solid chart patterns for reversals, was fun, but now found much more consistent way to sweep in profits just doing credit spreads based on directional.
It is said that a majority of retail traders (and probably professional over the long haul too) lose. And likewise a majority don't short. Though not sure how one can think of themselves as a trader, trading one direction.
If you are shorting stocks by borrowing shares of the stock from your broker, your risk to the upside is unlimited. Especially, if you get news that impacts that company either negatively or positively, in a huge way. This is how a lot of retail traders blowout their account and lose all their monies all in one trade. Don't be one of the dumb ones to find out the hard way. The way to short any stock is to buy a put option if they have options (make sure open interest is atleast 200 contracts). Not all companies have options to trade. Buying a put option, your risk on a worst case scenario, is to lose the cost of the premium, say $500. That is the absolute most you can lose. Of course, if your option drops to $250 in value, you can sell it and take that $250 and save some capital. You have lost only $250.