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Darren 🥚 Profile picture
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26 Jan, 4 tweets, 3 min read
For the record, stocks with high short interest typically have poor returns... the past year has been an exception to the rule.

Why Do Short Interest Levels Predict Stock Returns?


The Loan Fee Anomaly: A Short Seller's Best Ideas
Borrowing Fees & Expected Stock Returns


Short-Selling Risk


Why Do Price & Volatility Information from the Options Market Predict Stock Returns?


Term Structure of Short Selling Costs
https://t.co/DLJ2FW4HB5
Heavily shorted stocks rallied in 2020. How did short-term reversal do?

Not quite as bad:

Jan +2.71%
Feb -2.35%
Mar -11.87%
Apr +15.58%
May -3.09%
Jun -1.91%
Jul -3.27%
Aug -2.27%
Sept +0.42%
Oct +0.69%
Nov+3.23%
Dec -3.06%
(gross returns, $-neutral)

mba.tuck.dartmouth.edu/pages/faculty/…

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More from @ReformedTrader

Darren 🥚 Profile picture
28 Jan
1/ The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s (John Brooks)

“As a people, we would rather face chaos, making potsfull of short term money, than maintain order and sanity by [turning away new business] and profiting less.”

amazon.com/Go-Go-Years-Cr… Image
2/ "Interest rates were at near-record highs, strangling new housing construction and making industrial expansion impractical. The dollar was in trouble, worth many billions more than the national gold hoard. One hundred or more Wall Street brokerage firms were near failure.
3/ "In May 1970, an equally-weighted portfolio was worth half of what it would have been worth at the start of 1969.

"The high flyers that had led the market of 1967 and 1968—conglomerates, computer leasers, far-out electronics companies, franchisers—were precipitously down.
Read 6 tweets
Darren 🥚 Profile picture
26 Jan
Paper 1 (abstract): Based on lots of assumptions and this particular data set, we find that lockdowns don't work.

Paper 2 (abstract): Based on lots of other assumptions and a different data set, we find that lockdowns do work and strongly recommend them as policy interventions.
Paper 3 (abstract): Based on our own arbitrary criteria, we find that lockdowns may have been somewhat effective but were not worth the cost.

Paper 4 (abstract): We find that lockdowns were somewhat effective in saving lives and strongly recommend them as policy interventions.
Read 4 tweets
Darren 🥚 Profile picture
25 Jan
GME Jan 2022 80 strike
call: $36.00 mid
put: $47.50 mid

BBBY Jan 2022 32 strike
call: $10.45 mid
put: $11.94 mid
BBBY and BB:

stockcharts.com/h-sc/ui?s=bbby…

stockcharts.com/h-sc/ui?s=BB&p…
Read 8 tweets
Darren 🥚 Profile picture
24 Jan
Given two possibilities,
A. Factor death (zero expected returns)
B. Factor reversion (high expected returns)

What could help in either scenario?

Initial thoughts:
* Better execution
* Less aggressive trading
* Thoughtful turnover management
* Harvesting tax losses
* Lower AUM
Applications might not be as obvious as they seem.

For example, long-dated options have optically high spreads but reduce the need for aggressive vol targeting when it's most expensive to trade the underlying. They also make it possible to rebalance into dislocated assets.
Momentum can become much lower turnover and more tax efficient when rebalanced differently:

Implementing Momentum: What Have We Learned?


Shorting is more tax-efficient than it looks:

Taxes, Shorting, and Active Management
Read 9 tweets
Darren 🥚 Profile picture
23 Jan
One way to be a liquidity provider is to be an endowment: no leverage and infinite time to wait for convergence.

Another is to be simultaneously diversified/hedged, such that divergence has a payoff and allows you to hold on to convergence trades with very high expected returns.
Related reading:
Read 4 tweets
Darren 🥚 Profile picture
22 Jan
How would diversification have done in 2020?

#1: SPY: 18% CAGR (-19% dd, 0.76 Sharpe, 0.89√2 Sortino)

#2: SPY, TLT, DBC, and VXZ (inverse vol): 20% CAGR (-4% dd, 2.34 Sharpe, 4.38√2 Sortino)

#2 did FIVE times better (Sortino) due to lower drawdowns.

portfoliovisualizer.com/test-market-ti…
Read 7 tweets

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