Ever do shorts?

[Andrew Stepner]

Do you all ever do anything with shorts and/or leverage (for example Long/Short)?

Stepner

[Richard M]

Yes.

I am generally short the market overall and long individuals. I harvest covered puts against my market shorts to raise the cost basis.

january was brutal for this as indices all went up with megatech and all my longs didn't get any love. narrow breadth was bad. from what i read the market had the biggest consecutive up streak since 1970s which of course i had never experienced.

individual equities I tend to buy puts or sell a longer dated OTM call where I'd be OK shorting at those levels.

On Sat, Apr 6, 2024 at 3:06 PM Andrew Stepner <andrew...@gmail.com> wrote:

Do you all ever do anything with shorts and/or leverage (for example Long/Short)?

Stepner

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Richard Mordini

[Andrew Stepner]

Oops, forgot to click send, sorry for the delay...

Nice. What broker do you use? I ask because in an ideal world I would like to use cash from short sales to fund my longs. That seems to be what big players do. The idea being that you get paid ~5% on your shorts so they don't actually have to decline. They can just stay flat and you could still win because your breakeven is the 5%. Or else you can reinvest the cash long and then you are saving 5% with a free loan. Either way it would give you funding value from your shorts.

But for TD Ameritrade (soon transitioned to Schwab) it seems like you can't use any cash from selling short, they lock it up as untouchable collateral. And for Interactive Brokers they seem to pay interest on that cash from shorting, but not for the first $100k that you short. So that >$100k is a big hurdle amount to get past if you're just dabbling in small shorts.

The other issue with shorts that I don’t love is having to watch my cash position. If I’m only long, then my cash won’t ever go down, so I don’t have to worry about it. But if I’m short, and they sweep cash, whenever the short goes against me, then I have to worry about monitoring my cash to make sure that I don’t go into margin interest territory. Because those rates are ballpark 10% so I would be paying double what I could get on a market rate loan. So it’s just extra overhead to monitor that which is not great. Similar thing I am dealing with on futures to monitor that collateral though, so maybe I’m already having to monitor and I just need to see it as a cost of doing business to have my attention on that.

It makes me wonder if there is a solution. Any idea?

Or maybe I am better off using options to put on synthetic short positions. In theory selling a call would fund buying a put to give a synthetic short. (Albeit hard to borrow names might have too much option skew to pricier puts, but equivalently shorting them would also be a problem since they are hard to borrow).

Stepner

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