Shorting India (IFN, IIF)

A couple of readers complained that they had difficulty shorting the Indian CEFs, IFN and IIF. We investigated further, and here's what we found.

In response to article, Bill Cara Calls a Top in the India Closed End Funds, reader tkrisk wrote on September 8:

How do I short the Indian market….my wachovia broker…said the funds weren’t available to short? ….Thanks in advance

To which, we initially replied:

Hi tkrisk, We just confirmed the difficulty in shorting these funds. Schwab says, “This stock is either ineligible to be shorted or shares are not available to short.

Comments

[User 1:]

The India IIF has made another run as part of the Post-Katrina enthusiasm, as I see it.

BTW, the India closed-end Fund IIF closed the day of my call of the cycle top at $42.61, and then started to decline. Eight trading sessions later IIF traded as low as $38.34, which was -10.0 pct lower. My point in the article was that short-term chasing of Funds that trade at excessive premiums is an unwise tactic.

As for the process of shorting closed-end funds or ETFs, I don't understand the reader comment. Traders routinely short these items, and many have put options that can be bought.

There is an additional point -- given that the original title was "Bill Cara Calls a Top in the India Closed-End Funds (IFN, IIF)" -- which is that I think calling tops and bottoms ought to have low priority to how any trader approaches trading. I like to speak of distribution zones (for securities that in my view are over-priced), and accumulation zones (for the opposite case). In addition, a cycle top for a long-term trader is obviously often different to one for a day trader.

In my case, I trade frequently for possible gains in the seven to 14 pct range for the underlying security. That means I am expecting to turn over the portfolio say four or five times a year, which is a lot compared to the marketplace average, but not nearly as much as a day trader. Also, I seldom short or buy puts.

In my website/blog, I do not advise or recommend to readers that they adopt my tactics. I am more interested in that they understand strategy, and market timing is a part of that overall topic.

Bill Cara

2005 Sep 12 02:51 AM