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Options Trader: Friday Outlook

I am SHORT LEHMAN. They have the same books as Bear Stearns. LEH will not be an independent entity for very long.

Short Amazon Ahead of Wednesday Earnings - AmTech

Goood call. I went short into earnings.

Inverse Oil ETF Plunges 26%: What Gives?

rodcore, Why on EARTH were you long something that was +100% premium over NAV? This truly boggles my mind.

Poor People Use Yahoo, Better Off Use Google

Stupid people are resistant to change. Stupid people have not yet changed their browser (or PC) Makes perfect sense,.

5 Reasons to Buy McDonald's ASAP

MCD meals are not exactly cheap anymore. 1 meal easily can be $7.

Shorting ETFs - Goodbye To The Old Risks

Is the inherent risk/reward profit potential of shorting simply not anywhere near that of being long? Let me try to explain what I am pondering. (And please let me know if this is already "known" and has a formal name!) This is a highly intelligent forum, hopefully you can decipher my poorly articulated thoughts.

Let's assume, on any given day (or week, or even month),
a short position has approx the same risk/reward profile as a long position.
Expected volatility can be 5% in either direction, lets say..


However, shorting's risk/reward profile seems to be fundamentally different over any extended duration of time, particularly, if the amount of capital is not compounded/rebalanced (as it implicitly happens on longs)

Let's take a large stock movement within the dollar range b/w $3 and $24.

Case 1: Shorting a stock from $24 -> 12 -> 6 -> 3


1) If not compounded, you make 90%+ or so. By the end, you have a miniscule short position left. You're still short the same number of shares, but at a fraction of the original price. Since the market value of the position has decreased w/ the price, further 50% drops do not yield the same incremental profit. (Inverse compounding, if you will?) ie: You have not maximinzed/capitalized on a good trading idea, despite predicting a 21 point move.

2) Even if you maintain the original dollar amount as a constant (with additional shorting) all the way down. With $24 -> 12 -> 6 -> 3 , you still only made 230%, assuming you reinvest proceeds at the intervals stated.

3) Further, you can periodically reinvest ALL profits into the short, so, not only are you maintaining the original position dollar amount, you are letting additional profits ride as well, and increasing the dollar position size, as the stock drops. Even still, you do not get the same profit as being long if the stock moves up for the identical dollar range. (Theoretically, I think the continuous compounding concept/limit of "e" applies here? ie: Reinvesting at x% drops, even if done every 10%, or 5%, or 1%, or every penny. Even though this is not possible, in practice, I still am trying to see if shorting "can" be the same as going long, if you get the same dollar range movement. ie: You short everything, ever penny of the way down.

Case 2: On the other hand, being long from 3 -> 6 -> 12 -> 24 = 700%

Conc: As an individual (ie: not for hedging) long-term position,
seems shorting does not offer the same inherent "math".... for upside potential.

Apples/oranges ?

Shorting ETFs - Goodbye To The Old Risks

www.nuclearphynance.co...

Immediate Short Selling Opportunity in Bonds

Which muni is the best short? (Or all the same?)

The Oversold U.S. Market Gets Even More Oversold

When did this bozo go long? NO ONE using these nonsense indicators makes consistent money. This bozo is yet another example. Bull Market genuis.

The Fear Is Palpable. Time To Buy.

The market is off 15% the highs, and we have once in a decade sale? Just another bull market clown.

An Attractive Entry for an Amazon Short

I got destroyed shorting AMZN in 2007.
Worst trade of the year.