To short overvalued stocks, what tools are there to improve timing?

[DegenerateGambler]

I am looking to short some insanely overvalued stocks like Palantir, trading at 600+ PE and 140 times sales, but it's tricky to get the timing right as people just "buy anything AI".  Stanley Druckenmiller talked about using some indicators to gauge buyer exhaustion, but I don't know how to do this at all.  Any of you have any experience with shorting stocks can shed some light on how do you gauge things like buyer exhaustion and improve timing?

[gfp]

Were you an active investor in 1998-2000?

 

[DegenerateGambler]

I was not an active investor in 1998-2000, do you feel now we are more akin to 1998-2000 than 2000-2001?

[gfp]

11 minutes ago, DegenerateGambler said:

I was not an active investor in 1998-2000, do you feel now we are more akin to 1998-2000 than 2000-2001?

 

Yes

[Malmqky]

I wouldn't touch Palantir with a 10 foot pole, and that includes shorting. Market can stay irrational longer than you can stay solvent.

 

I think Palantir is a really tough short. Quantum is a lot easier, although that thesis is already playing out.

[Milu]

18 minutes ago, DegenerateGambler said:

I am looking to short some insanely overvalued stocks like Palantir, trading at 600+ PE and 140 times sales, but it's tricky to get the timing right as people just "buy anything AI".  Stanley Druckenmiller talked about using some indicators to gauge buyer exhaustion, but I don't know how to do this at all.  Any of you have any experience with shorting stocks can shed some light on how do you gauge things like buyer exhaustion and improve timing?

Seems like this would be very hard to do and not very pleasant for stress levels. Let's imagine that Palantir was trading at 400 PE, and 100 time sales. That also seems insanely priced and if you had put on your short then, you have now watched the stock go up 50% from your initial short position. The same thing could happen if you put your short on now at 600 PE and then watch as it goes to 900 PE. Stocks have no issues in going from overvalued to insanely overvalued to super-duper insanely overvalued.

[Masterofnone]

^ +1 

Shorting individual stocks in "irrational" times can lead to sleepless nights and loss of capital. 

[Marco Van Basten]

32 minutes ago, DegenerateGambler said:

I am looking to short some insanely overvalued stocks like Palantir, trading at 600+ PE and 140 times sales, but it's tricky to get the timing right as people just "buy anything AI".  Stanley Druckenmiller talked about using some indicators to gauge buyer exhaustion, but I don't know how to do this at all.  Any of you have any experience with shorting stocks can shed some light on how do you gauge things like buyer exhaustion and improve timing?

I would never, ever short on valuation.  This is a way to ruin.  It is an extremely tough business.  There are very few good short sellers.  The ones that last never short on valuation.  There has to be a catalyst - typically major earnings miss, accounting fraud, drug being banned, etc...

Again, I very strongly advise you not to short individual stocks.   It was very easy to get ruined shorted stocks in 1999-2000, and again in 2020-2021.  Just don't do it.  Ask yourself, how many people made a fortune selling short, and how many lost one?  

[DegenerateGambler]

Thanks for the inputs guys.  I guess it's pretty hard to gauge how many years we are away before rationality returns to the markets.

[Malmqky]

Just now, DegenerateGambler said:

Thanks for the inputs guys.  I guess it's pretty hard to gauge how many years we are away before rationality returns to the markets.

 

I would take it a step further and say it's impossible.

[Longnose]

To use the redditism: Username checks out.

 

all jokes aside. welcome to the forum and hope you hang around. 

[DegenerateGambler]

Interestingly, Michael Burry of Big Short legend, has opened bearish positions against Palantir.  I think he is a bit early but might not be wrong.  I feel his bearish bet against NVDA is wrong tho.
https://www.quiverquant.com/news/Michael+Burry’s+Scion+Asset+Management+Bets+Against+Nvidia+and+Palantir

[Eldad]

Get some super out of the money long dated puts if you want. As far as shorting it directly, if you do it you wait for the turn to even think about it. Once the bubble has obviously started to pop. That’s how the successful shorts have done it in the past. It’s seems like suicide right now. Sentiment is hugely against you. 

[brobro777]

Well my experience isn't an exact comparison because it involves credit risk, the subprime mortgage bust of 2007-2009, not overvaluation like 2000-2002 dot com bubble burst or possible AI overvaluation now

 

But I began shorting the markets in 2006 because of all the dumbass subprime mortgages - remember NINJA, No income, No Job or assets mortgages - and got my ass kicked over and over for like a year and a half before my puts finally began to pay off 

 

And the puts began to pay off for me in the spring of 2007, around the time Sam Zell unloaded his Equity Office Properties to Blackstone https://www.chicagobusiness.com/article/20170601/CRED03/170609990/sam-zell-s-perfect-timing-of-equity-office-2007-sale-explained

 

So I think shrewd guys with long, verified track records unloading big, meaningful positions (not small sizes but big positions) may be indications that can help you improve timing your shorts

 

Or you could just forget about shorting altogether and make money much easier

 

haha

 

[FCharlie]

15 hours ago, DegenerateGambler said:

Interestingly, Michael Burry of Big Short legend, has opened bearish positions against Palantir.  I think he is a bit early but might not be wrong.  I feel his bearish bet against NVDA is wrong tho.
https://www.quiverquant.com/news/Michael+Burry’s+Scion+Asset+Management+Bets+Against+Nvidia+and+Palantir

It's very possible that NVDA is not experiencing a bubble in valuation, but rather a bubble in profits. 

[Malmqky]

Remember Burry was 3 years early on the CDS shorts.

 

I’m certain Palantir at least is overvalued, but like I said I would never touch it.

 

High, high chance Burry gets burned imo.

Edited November 4, 2025 by Malmqky

[DegenerateGambler]

Value investors tend to be early in things, so i guess Burry isn't the best indicator out there.  I wish I knew how the Soros/Druckenmiller methods worked since they sometimes long and short the exact same securities - playing both sides.  That would make shorting Palantir and the AI bubble much easier.  I think Burry will get burned on NVDA since it's like growing 50% with a 50 PE, not exactly expensive even tho there is circular accounting like he mentioned.  It's probably hard to gauge something like buyer exhaustion without a Bloomberg terminal or some proprietary methods.

[DooDiligence]

Burry sure hit a nerve.

 

https://www.cnbc.com/2025/11/04/karp-big-short-burry-palantir-nvidia.html

[Eldad]

55 minutes ago, DooDiligence said:

Burry sure hit a nerve.

 

https://www.cnbc.com/2025/11/04/karp-big-short-burry-palantir-nvidia.html

Odd wasn’t it? Why so insecure? 

[DooDiligence]

22 minutes ago, Eldad said:

Odd wasn’t it? Why so insecure? 

 

High wire act getting scary?

[DegenerateGambler]

Karp seems to think 700 PE or even more is supportable by his company's mission which he seems to think is special above all other since he thinks his company is doing a noble cause.  He compared his company to michael jordan and michael phelps.  So that tells you where his beliefs are.  Retail drove up the price of Palantir and may burn Burry.  Tho I have to say i did short Palantir with about 4% of my portfolio after careful analysis and we will see how that works out.  It prolly will go to 1000 PE just cuz i shorted it lol.

[Sweet]

They way I would play PLTR, would be to buy deep OTM puts, and hope for a large correction to come your way.  These things don't have to ever be in the money, they just need to way closer to being in the money.  They would have to be long-dated.  I used this play a few times and it worked out well, but very high risk because there is no intrinsic value as a safety net.

[lnofeisone]

My PLTR play is to wait until mid-term elections and (so 2026), and then look for 3-year out way OTM puts and scale into those via calendars. The narrative is simple. With this administration just about every Gov't agency is buying PLTR. Sometimes they do it to get access to other things but PLTR still gets paid. So their sales will keep going up. New administration will clean the slate and PLTR will be one of the first things to go because its software isn't all that good, their sales people are a-holes, and their engineers aren't as helpful as those of other vendors. They are also deeply tied with the current admin. 

 

Everyone is expecting PLTR to implode, and option pricing (2028 $100 is trading for $20) reflects that. Calendars help you manage your IV cost here and if you are wrong, you aren't out of too much capital. 

[This2ShallPass]

I agree with the overall sentiment that it's better to not short.

 

But this thread got me thinking. Cant you short and then buy OTM calls. Palantir short and then buy Apr'26 $200 calls for $20 for a total risk of $40. Say it goes to $800 PE, then you have made more than your $40 (take those gains and short again). Also, calls take the most risky part of shorting out by containing max loss.

 

Why April? Longer duration is high premium, I just picked something in between. Also, these kind of companies rely on music not stopping. Every new buyer is doing it because he hopes a bigger fool will arrive. Likelihood of the stock going sideways is very small - either continue upwards trajectory or go down.

 

My brief trysts with shorting (via puts) have all been bad so I'm no expert, just spitballing. 

 

[This2ShallPass]

1 minute ago, backtothebeach said:

 

You still lose $40 more on the short stock than you make on the call.

 

Shorting 100 shares and buying one $200 strike (OTM) call is equivalent to buying one $200 strike (ITM) put. The put costs around $39 right now.

You're right, you lose $40 if stock goes up. The calls (or buying ITM puts) just limit downside..not as good an idea as I thought.