Fads. Frauds Failures.
3 Ways to Spot Shorts.
In 2012 I was on a desk where we had a large, short on University of Phoenix. This was a 1+ year thesis that we took into this name and it gave me my first real taste of short selling in markets.
One of the senior guys there taught me the “3 F’s”
Fads, Frauds, Failures.
“That’s how you spot short ideas, there are always fads that come and go, there are technical failures and then as sure as the sun rises Wall Street will have frauds” he said.
Remember that company, Skull Candy headphones?
That was a Fad in the expensive headphone years.
We shorted that too.
The markets are endless opportunities so when people ask me what my strategy is I never really have a good answer.
I guess if you broke it down, I’d say I’m opportunistic towards situations/setups where the asymmetry favors me.
So bull market, bear market it really should not matter if you look at it through the lens of “there’s always opportunity”.
I am going to break down three short ideas from TheLongVol Report this week.
This week in the TLV Report there were 3 short ideas.
NVDA - Technical Failure/Fad + overbought set up.
TSLA - Tecnical Failure
AI - Technical Failure/Fad set-up
The other factor that all 3 of these names had together is this:
The markets at large are extended/risk-off this week so that helps the macro picture from a trading perspective. We rallied extremely hard the last two weeks so to see continued buying with the same energy the last 2 weeks is going to be rare.
That helps when you want to be a bear.
I am going to explain them a bit here then there is a video I made you can watch.
AI was the best, that was good for +20% in about two days.
Breaking it down:
You had a technical pattern to look for failure on the high time frame
It’s a bit of a fad that’s extended in price
The options IV is a bit high to justify just using puts so I shorted shares, scaled in and out - I don’t mind paying up for high IV on puts if I can see a BIG move on the stock - in this case it was +20% in two days.
$41/$42s are resistance now and if I can short there and take it to $36, then resort there this makes for a continue short
These setups are good for swing trading
TSLA was decent good for a 1-day trade.
Breaking it Down:
Weekly & monthly charts are bullish
Needed a pullback to reset the long side/shake out longs
These are good for intraday trading = size up and scale out within an hour
NVDA was so-so but it’s setting up and that is an A+ play in my book.
Probably my ATF setup - technical failure with a Fad aspect to it - I will stalk moves like this for weeks on end and test the short side over and over small until it cracks then press on the gas
This would be an A+ setup in my playbook so it gets more attention and capital
I don’t really care if this is equities/futures it’s pretty much the same to me. As long as there is context to the short and other factors helping the idea then I’ll short it.
There are characteristics that help with these trades as listed above and when you can get a few to work together that helps.
Looking at the 1/5 min charts don’t matter to me because I am seeing the larger time market flow so there is no trading in and out for me. I get that if you are trading smaller that this is a ‘strategy’ to use but my insights to fix that/help would be just to use an ATM put and hold that while you trade in and out.
Hope this helps.
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