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Tuesday, December 9, 2008

SHORT THE SHORTS

Somehow I don't like to short stocks.
Two reasons
The risk is unlimited. The stock could go up 1000%. When you are long you only have 100% at risk.
Seems mean to me. Betting against somebody's business.

But I have found something I enjoy shorting.
I enjoy shorting the shorts.

Easy to do

There are several short ETFs. Exchange traded funds.
My favorite to short is SDS. Ultra short S&P 500.
Ultra magnifies it by 2. If S&P 500 is down 2% then SDS is up 4%.

But you can short the SDS.
Then if the market is up 2% you are up 4%.
Why bother? Why not just go long the S&P 500?

You don't need cash to short a stock. When you short cash actually comes into your account. You do need equity, but not cash.
So, do you believe that stocks will be higher eventually? Then shorting the shorts is a great strategy.
Plus shorting the shorts seems to eliminate the unlimited liability.
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