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Department of Strategy
The Case Against Shorting
By Phil McDonnell, Vic's student at UC Berkeley
I try to be long biased if possible but have no religious convictions which prevent the opposite. The biases against the short side in stocks are very strong:
Despite the above, if one still wishes to use a short strategy I would recommend using options or futures instead of stocks. Theory and most empirical evidence says that options and futures are fairly priced zero sum game less vig. Thus selling a call, buying a put or selling a future avoids the long term upward bias problem. As always these vehicles are no magic bullet. You still need an edge and the best way to gain an edge is through counting.