Jump to content

Shorting stocks


benchmark
 Share

Recommended Posts

I think you need to separate traditional short sellers from short sellers who deliberately catalyze a position such as Muddy Waters, or Jim Chanos, or Ackman. 

 

My understanding is that traditional short sellers try to grab a falling knife on the way down, not on the way up.  Linkedin, while obviously overvalued, has earnings, capital, a brand, and upside earnings potential. 

 

You need a company that has nothing there to hold its stock up.  Linkedin has 1 billion in cash as of 6 weeks ago, and essentially no debt.

 

So, how do you set your target to buy the shares you sold short:  $50, $100, 150?  What's fair value for LinkedIn? 

 

I have a hard enough time setting upside sell targets on value stocks.  Should I sell my shares of BAC at 16, $20, $24?  And I have already made 100% profit to date on the aggregate position. 

 

Seems like torture to me unless you can identify and publicize a catalyst.  LinkedIn is overvalued doesn't seem like a sufficient catalyst to me.  The difference between Facebook, Google, LinkedIn, and Netfilx, versus .coms of 13 years ago is they they have viable businesses with real revenue and cash flow. 

 

 

 

 

Link to comment
Share on other sites

Also traditional shorting is not asymmetric. Upside is limited.

 

Are you referring to the fact that the loss could be unlimited?

 

That upside is limited to 100% through traditional shorting. If it goes to 0, you double your money.

 

Unless you use options / CDS. But those are time-constrained and may be priced at a premium if what's obvious to you is obvious to other people.

Link to comment
Share on other sites

I think you need to separate traditional short sellers from short sellers who deliberately catalyze a position such as Muddy Waters, or Jim Chanos, or Ackman. 

 

My understanding is that traditional short sellers try to grab a falling knife on the way down, not on the way up.  Linkedin, while obviously overvalued, has earnings, capital, a brand, and upside earnings potential. 

 

You need a company that has nothing there to hold its stock up.  Linkedin has 1 billion in cash as of 6 weeks ago, and essentially no debt.

 

So, how do you set your target to buy the shares you sold short:  $50, $100, 150?  What's fair value for LinkedIn? 

 

I have a hard enough time setting upside sell targets on value stocks.  Should I sell my shares of BAC at 16, $20, $24?  And I have already made 100% profit to date on the aggregate position. 

 

Seems like torture to me unless you can identify and publicize a catalyst.  LinkedIn is overvalued doesn't seem like a sufficient catalyst to me.  The difference between Facebook, Google, LinkedIn, and Netfilx, versus .coms of 13 years ago is they they have viable businesses with real revenue and cash flow.

 

I agree that LinkedIn is a real company with real earnings, but it's only growing at 60-70% y2y, using forward earning, it's trading at about 500+ PE. The short thesis is purely based on rich valuation. At some point, the growth will slow, and the stock will follow, though I don't know when.

Link to comment
Share on other sites

Also traditional shorting is not asymmetric. Upside is limited.

 

Are you referring to the fact that the loss could be unlimited?

 

That upside is limited to 100% through traditional shorting. If it goes to 0, you double your money.

 

Unless you use options / CDS. But those are time-constrained and may be priced at a premium if what's obvious to you is obvious to other people.

 

Considering you are not using your own money to short the possible upside is far greater than 100%, perhaps it can be compared to the initial margin used? In addition, you can use the funds from the short to reinvest in a long which means an infinite upside, with other people's money ;)

 

Link to comment
Share on other sites

Considering you are not using your own money to short the possible upside is far greater than 100%, perhaps it can be compared to the initial margin used? In addition, you can use the funds from the short to reinvest in a long which means an infinite upside, with other people's money ;)

What broker is allowing you to use proceeds from short positions to initiate long positions?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...