short strategies and short interest

Discussion in 'Strategy Building' started by man, Mar 9, 2003.

  1. man


    I am starting to test strategies going short only using fundamental data from balance sheets as well as earnings forecasts, ratings by agencies and price itself.

    Most important single variable except price will be most likely short interest. Now, I haven't found historic data on a daily basis and I am not even sure if that data is available somewhere. Does anyone know sources?

    The problem with short selling is the timing and the money management. I think it is useless to try to forecast banruptcies. Trying that is tempting but I heard of no one who succeeded in that. i would rather try to define kind of an upper valuation band and a lower, where I sell the upper but close out at the lower. Thus I am more oriented in let's say 10-30% corrections than real sell offs leading to fractions of original price. The key problem is twofold: first shorting is expensive since you are restricted by the uptickrule plus the increased comission due to short fees. second the distribution of stock ptice movements works against you since, no matter what model, you cannot win more than 100% but can loose multiples of that.

    Basically there are two important sources of information: sectors against each other and sectors in itself. The target is to analyse one sector against others, eg are financials stocks undervalued compared to utilities, and to find within one sector those stocks with the highest upward diversion from the others in this sector. By adding this two pieces of information up one can find candidates for short selling. It is subject to testing which techncial feature works best for triggering a trade.

  2. The source that I use for short interest is the Nasdaq site. For example, even for listed stocks, they have historical info:

    With regards to sectors, I too will focus on specific sectors where I use fundamental info on sector constituents to find long candidates and then short the respective ETF such as the semiconductor holders (SMH). In that way I am not subject to the unlimited risk of short-selling as you referred to.

    Also, with some firms such as Andover where I work, you can use bullets and then not be subject to the uptick rule.
  3. saxon


    On the short side, I trade exclusively ETFs and index futures. Maybe other traders are agile enough to short individual stocks, but it seems to me a bad risk/reward ratio (i.e., they can only go down 100%, but they can go up ????%!). ETFs and indexes, on the other hand, are unlikely to double overnight.

  4. maglia rosa

    maglia rosa Guest

    You might want to look at the fixed income market for short ideas as well. The credit default swaps market gives a good indication as to a company's probability of defaulting (which is not the same as going bankrupt).

    As far as I know, the short interest number gets published only once a month.
  5. maglia rosa

    maglia rosa Guest

    The same analogy goes here on the downside though: a single stock can go down 50% more easily than an ETF or an Index. It seems to me the risk-reward is symmetrical on that aspect, but I agree with you on the smaller magnitude due to the diversification effect and as such smaller exposure to unique (company-specific) risk with an ETF or an index (although sector indices will show fairly high correlations between component stocks).
  6. I was told with the Andover merger with SDS that we would soon have access to daily short interest instead of the monthly that is published.
  7. man


    I see your point. I thought there might be other data vendors out there offering things maybe daily as well. I think it is a good idea to use the ETF instead of single stocks.
    I for myself think that you will end up making money on the long and in the long run will flat or slightly up on the short, since you still trigger trades from the long side.

    I agree that shorting etfs and futures offer a different more favorable return/risk profile.

    maglia rosa
    totally agree. I am doing some research to get that kind of data as well. It has not been easy so far. I am going to use rating agency data as well, but i assume they are not quick enough to use them for trading. You have source for CDS data?

    very interesting for me. you have an URL that I could contact for details?

    guys, thanks for posting.

  8. Single stock futures are available for this as well. If you are interested, there is a topic on this forum, or you can explore:


    There are even futures on some of the ETFs as well. Just in case you would like more leverage in your bets.

    Good luck,

  9. man


    I am saving now the sp1500 universe regularily.

  10. *******

    As mature as this bear market is , your actual results may be better than your test in a real mature bear market or uptrending market,

    Speaking of strategies,hit a book sellers bid at about a 50% plus retracement down from new price recently .:cool:

    Got Smarter Trading today, wish all downtrend fills were that good and orderly.:)
    #10     Apr 9, 2003