Hi, I 've been taking a lot of shorts positions lately on all kinds of stocks from 1B to megacaps. Average open position for a single trade is usually around $20,000. Sometime I leave it open for weeks sometimes it is closed the same day . I am however worried that sometimes I would not be able to close it at a reasonable price due to some manipulation or news where the stocks keeps going up way to fast . I was lucky enough to own CAR when it shoot up like 200% in matter of minutes. If I was short would I be able to get a reasonable fill if those kind of crazy situations? Another problem is overnight short position . Some companies are really shitty but the can often go up 50-200% overnight based on some idiotic fake news. I 've been thinking about using puts but they seem to be more expensive in down markets . How do you deal with a potential short squeeze or some other unexpected event? Even if you just put 5% of your portfolio in 1 short trade, 500% increase overnight can be devastating. thank you for help
The only way I would hold a short position "for weeks" is if it was a mega-cap stock and there was absolutely no chance the company would be bought out. I think the longest I ever held a short position was about 22 days and that was Sysco so I wasn't worried about them being bought out and the stock price doubling or tripling overnight. BTW I received my first forced buy-in a couple of months ago.Not a pleasant experience but fortunately I was at B/E on the position. But it was still annoying.
Probably not according to your definition of reasonable; you'd end up taking a huge bath. That's one of the big difficulties with shorting stocks... theoretically you can lose an "infinite" amount of money. Practically, you can lose much more that you have. Unlevered long positions can only lose the amount invested, obviously. That may not be a bad decision. They're more expensive because they can act like insurance and that fact is priced in. Just like health or car insurance... the best thing that can happen is you buy it and don't have to use it.
On stocks with market cap 1B+ this squeezing happens only very rarely. On small caps it's part of the game. You need a plan for this kind of behaviour, it can even happen right after 4am. Imo you should not short small or micro cap overnight unless you are confident managing squeeze risk, ie. some sort stop order outside regular hours (with custom algo or watching it constantly).
Ah you are asking the right question! Everything works in normal markets, but the market is not always "normal". There are three situations you need to be concerned with. 1) The short squeeze as you point out. This is pretty easy to deal with. Keep a native order at the exchange, not a simulated one at the broker. Then you are "ahead" in the que from the simulated and then new orders (of course). Just make sure you are "execute" after hours AND the order type you have will execute*. I would test this live with a small order. You just take a loss or less profit. No big deal. 2) Technical issues between you and the exchange. I won't go into it beyond knowing how you are hooked up, secondary broker and knowing you need to be prepared, tested, and practiced on how to implement your solution. This is why trading via smart phone on a cellular connection is, imo beyond stupid, for anything more than "messing around". 3) A disorderly market. This is when you can get devastated. These markets can happen more often than newbies think. It can happen from a short squeeze, a technical issue or event. Same solutions, but the best is to understand, profit in your hand is better than being caught. No need to be paranoid, but it should factor into your risk assessment. It happens infrequently, but it can hurt the yearly PL. Two case I can cite. 9/11 opening, Lehman Bros melt down. Took about 8 minutes and 25 minutes to close ES positions at market, respectively. The latter was longer because the event involved the brokers. Profits went from about 120K to 60K and 145K to 35K, respectively. Best of luck. * this information is buried at the broker web sites. It is instrument-Order Type- Exchange specific. (FYI IB's list is currently erroring a 404, and I reported it to them last week).
How do I do that? I use IB TWS mosaic . I've never heard about it before. Could that have been prevented if you kept your order at native exchange? My last question is, do you think that buying calls and puts would be better in regards to possible risk as it is limited with options? thank you very much for your help
Seriously, it took 25 minutes to close out your "market" order? Kinda hard to believe but weird things do happen in the market.
You can only really plan for such events ahead of time. Quite often there is a gap accompanying these types of moves which by definition means you can't get out. In your toolbox to cap risk: Position sizing, hedging by OTM calls, or buying puts instead of shorting outright, or some combination thereof. The size of your position determines how far south it will take your account with it if unhedged.
I was shocked. I had a MKT submitted 12 hours before the open. Figured I would be OK, make a killing. It was an eye opener for me. Frankly, I could care less if anyone believes it or not. roll your eyes until the cows come home, lol. Did you trade it? It was absolutely crazy. Orders were sitting as opened at IB and not confirmed by the exchange all AM. Time of Sales prints where all out of order and sporatically reported in bursts. There was a lot of corrections at the end of the day. It was a day to remember. Like I said, 9/11 open was a lot easier but the Lehman Bros involved the market makers and it was way more "mine first", priority clients next, then do the retail whenever it is OK, IMO.
You have to check the instrument-exchange-order type. Under order types, there is a link to the exchange. There are lists which order types are simulated or native for each product type-exchange E.g. https://www.interactivebrokers.com/en/trading/orders/stop.php Then click the link "exchanges". I get a 404 error, but it normally lists the information you seek. Here is a link from Def, IB's moderator, from 2002. It has the order types from the HK web site, for globex, as an example https://www.interactivebrokers.com.hk/en/index.php?f=2222&exch=globex&showcategories= It came from this thread: https://elitetrader.com/et/threads/ib-globex-and-limit-stop-orders.9184/page-3#post-131172 Maybe native would have helped, but hard to reproduce the situation for testing. Maybe someone from IB, AMP, lightspeed, could comment. My opinion is an outsider looking inward. Things also change on how things are setup. But it seems logical that a native order would be better than a simulated one in a disorderly market. How much better? I could not tell you and it may be negligible. All above my pay grade. Hard to say on the options. I don't have experience enough with them. I don't actively trade anything I don't have 6 months of paper trading, and 6 months of small lots. Of course a lot of people just jump right in. But I would not follow them, knowing what I know now. But I would say the low liquidity inherent in options would be a different can of worms.