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Strategies & Market Trends : Ask Vendit Off-Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: MJ who wrote (7963)	4/19/2005 2:05:57 AM
From: Walkingshadow	Read Replies (1) \| Respond to of 8752

Hi MJ, I don't know any way to directly short a stock without margin. That's how they make money on the deal. But there are several mutual funds that allow you to take short positions. These do not require margin. The Rydex, Potomac, and UltraProfunds mutual funds families have a variety of short mutual funds. These short various indexes and things such as the long bond. Some of them are leveraged, so they return 125%, 150%, or 200% of the benchmark (or the index of the benchmark). They do this pretty accurately and reliably. In several retirement accounts I exchange long and short positions using Rydex or UltraProfunds MFs that produce double the return of the Nasdaq 100 (long; RYVYX or UOPIX) or double the inverse of the Nasdaq 100 (i.e., short; RYVNX or USPIX). This sort of strategy is tricky if you are trying to move in and out of something fairly fast, because the mutual funds generally price only once a day, and all transactions take place after the close. In addition, usually you have to get your order in several hours before the market close---they have cutoff times. Check with your broker for specifics, these vary from broker to broker I believe. The nice thing is that generally you can do a straight-across exchange in one transaction. But if you are planning to get in and out quickly (less than 3 days hold), check with your broker----they may not allow an exchange back until the trade has cleared. You can get around this by having a cash position set aside for this purpose. Also, ask what transaction fees your broker charges. For these specific funds that are intended for market timing traders, many brokers waive the "frequent trader" penalties normally charged to people who hold mutual funds less than some minimum time period like 90 days. The fund families have high minimums if you invest directly with them, but most brokers offer much lower minimum initial investments. On the other hand, I believe some of these funds price twice a day, and so if you go thru the fund family itself, you might be able to benefit from this, giving you more flexibility. I am not sure, but I believe most or maybe all brokers will only process exchanges once a day after the close, and your order has to be in an hour or more before the market close. Anyways, I have never gotten a mid-day fill. Short MFs are probably best for situations where you are trading medium-term or long-term trends. Personally, I think considering short positions in accounts normally restricted to long positions only because they are not marginable is an excellent way to potentially hedge your long-term positions and so favorably influence risk/reward. The only short funds I have traded are the ones that short the S&P500, the Nasdaq 100, and the long bond. This latter is a long-term position that is betting that the long-bond yield will increase over time, probably a pretty decent bet considering where the long-bond yield is in relation to historical norms. But this is not really a speculative position---my primary purpose in shorting the long bond is to hedge fixed income positions (especially government bonds) that are exposed to interest rate risk, and this is relatively independent of equities except in so far as there might be general net cash flow from equities to fixed income and back again. So again, overall risk/reward for fixed income investments is favorably influenced with this strategy. Secondarily, shorting the long bond is an investment strategy in itself. Hope this helps, T

To: MJ who wrote (7963)	4/21/2005 7:44:45 PM
From: Walkingshadow	Respond to of 8752

RYVYX up 5.7% today. Personally I like to flip long and short via these funds. You just have to be careful with position size, but it is a nice possibility for accounts with restrictions (e.g. retirements accounts of various kinds). I flipped to short on 4/8, then back to long on 4/15. Compounded return in 13 days = 17% trading an index. I like that, since you are relatively insulated from surprise company-specific problems, yet you can enhance the volatility and so exploit that. So the risk/reward is to my liking, and you only have to concentrate on watching QQQQ. Same sort of strategy can be employed with other indexes as well, using MFs specific to those. Sure would be nice if somebody invented a derivative that accomplishes the same thing, but trades in real time. That would obviate the major problem with this approach---that the MFs can only be traded at the close, and you have to make a decision during market hours at least one hour before the close, just as the market is heading into one of the two busiest parts of the session. T