

Ask HN: Best way for individual investor to take short position in tech stocks - svtrent

For both hedging and speculative purposes, I am interested in risking some money that technology stocks will broadly decline in value over the next few months to 1 year. As far as I can tell, there is no good way for me as an individual investor to express this viewpoint. Some ideas and their pitfalls:<p>- Buy put options on a broad tech ETF like QQQ, but the costs of trading options seem prohibitively high at online brokerages (TD Ameritrade, Schwab)<p>- Buy an inverse ETF like PSQ, but inverse ETFs have very high fees and also only tend to work over a very short time horizon (days at most)<p>- Buy a long position in some stocks that should benefit if tech declines. Unfortunately I don&#x27;t know of any sector that is so clearly inversely correlated with tech<p>Does anybody know of a good way to take a short position in tech stocks?
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jklein11
The short answer( which is almost always the short answer to generic
investment strategy advice) is it depends.

I wouldn't select an actively managed fund like inverse ETFs based on their
strategy. You aren't just investing in the strategy but also in the fund
managers ability to execute on this strategy.

Because you have a specific time horizon and you mentioned hedging the options
strategies seems like a decent idea. You mentioned buying puts, but you could
also sell call options, much like shorting stocks. This will give you
leverage. You can do this by using derivatives of index etfs or hand select
the companies you think are going down.

You mention the fees at low cost brokerages being too high. They are typically
around $15 per trade. To be honest if you aren't investing ~5000 even the
greatest return probably woulnd't be worth the time and research necessary for
completing the transaction.

Also ignore the people saying its a sure fire way to lose money. Being
speculative is an important function of the economy. No risk no reward!

~~~
fsk
FYI: Inverse ETFs are horrible. They wind up buying high and selling low, due
to the fact they continually rebalance. Someone did a study of inverse ETFs,
and they performed poorly even when their target index tanked.

Even if you buy 1-2 year NASDAQ ETF (QQQQ) puts, there's no guarantee that the
bubble won't pop in 1-2 years. You may wind up with a 100% loss.

The overall trend is for the stock market to go up, due to inflation. Short
selling and put buying is betting against that trend.

There is no guarantee that the market will crash (even if it's overvalued
right now). There might just be a couple years of 0%-5% returns, in which case
put buying and short selling won't work.

Remember that, if the market does tank 10% or more, the Federal Reserve will
probably increase their "quantitative easing" to try and re-inflate it.

~~~
jklein11
Also to alleviate the possibility of the stock market at large expanding and
wiping out any gains form the QQQQ not doing as well you can sell puts on a
broader index(like s&p) and then sell calls for the what you think will do
poorly. For more info google stock picking options strategies.

~~~
fsk
But with an unhedged option spread like that, his losses are unlimited. I.e.,
QQQQ continues to skyrocket while SPY tanks (or is flat).

Naked put selling is very dangerous. (Well, his risk is limited to the strike,
but that's a small consolation when the premium for selling the put is 5%-10%
of that.)

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akg_67
Among the options you listed, long term put option on QQQ appears to be the
best fit for your objectives.

Fidelity charges $7.95 per trade plus $0.75 per contract. More info on fees at
[https://www.fidelity.com/trading/commissions-margin-
rates](https://www.fidelity.com/trading/commissions-margin-rates).

When you first start Option trading, you will likely need to call to get
approval from the brokerage for options trading. Most brokerages will also
provide you an Option Risk guide similar to this
[http://www.optionsclearing.com/about/publications/character-...](http://www.optionsclearing.com/about/publications/character-
risks.jsp).

If you are new to Options, I will suggest doing some research and reading
online to familiarize yourself. If you are further interested in learning
theory and mathematics of Options, a good introductory text is "Options,
Futures, and Other Derivatives" by John Hull [http://www.amazon.com/Options-
Futures-Other-Derivatives-9th/...](http://www.amazon.com/Options-Futures-
Other-Derivatives-9th/dp/0133456315)

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ac2u
You seem to be aware of the risk, in the event all you get here is lectures on
why you shouldn't do it, the folks over at
[http://www.reddit.com/r/investing](http://www.reddit.com/r/investing) may be
able to help.

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brudgers
Consider the fees just the cost of doing business. If the fees seem too high
then it's not a good business for you at this time. Because shorting has
potentially unlimited losses, the high price of entry is a filter to keep out
those who may not really be suited for the risks.

Good luck.

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kleer001
1) I would suggest you be more specific. "Tech stocks" is vague. Do you mean
tech consumer goods, industrial tech, tech materials?

2) It seems to me that your ability to take risk plus your confidence in your
foresight is nearly equal to your perceived costs of doing the speculation
you've set out to do. That tells me that your profit margin is too slim, that
you are looking to compete where there are lots of eyes, lots of other people
thinking the same thing. I encourage you to find an speculative investment
that you believe in more (or with less eyes on it) before you pull the trigger
and slap down some cashola.

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phantom_oracle
This was actually a good call and you would've nailed about over 100% returns
(in a few days) if you went long on put options on the big tech-social stocks
for this quarter.

Twitter and LinkedIn took a hammering, so individually they would've done well
for your portfolio.

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fsk
Just write Goldman Sachs a check for the amount you want to gamble. It'll save
you time and stress.

The market can stay irrational longer than you can stay solvent.

Individuals generally should not short. With ZIRP, the Federal Reserve is
inflating hard.

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rajacombinator
Why not ... Just short tech stocks? No need for all this put option, inverse
ETF, etc. nonsense. Pick a few tech stocks you think represent the sector and
go short em.

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staunch
Save yourself some money ;-)

[http://en.wikipedia.org/wiki/Global_Internet_usage](http://en.wikipedia.org/wiki/Global_Internet_usage)

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eonw
i wouldnt say its a bad idea, as i will be shorting tech stock soon as well...
the bubble cant keep inflating.

my broker does it for me, i just tell him what i want and he does the rest.

