Sell Short by Shulman Michael

Author:Shulman, Michael
Language: eng
Format: epub
Publisher: Wiley

CHAPTER 9

Creating the Great Segment Trade

You pull out your shotgun and look for a barrel with some fish in it and lo and behold, you find the U.S. financial sector. Let’s short the financials. I mean, let’s use this segment as an example of how to short a segment. I am not suggesting you walk out of the book store and short financials. Let’s walk through two trades—the short on the segment through the purchase of a put on the ETF, and let’s do a rocket-fueled trade.

Prospecting

The rules of keeping it simple and common sense still apply.

The banks are weak and weakening. The news is everywhere from the Wall Street Journal to the latest fortune you received in a cookie at the local Chinese restaurant. You troll around reading and prospecting in a manner similar to the way you identify and prospect individual companies. You see that, collectively, financial institutions have written off more than $400 billion in bad loans—and the headlines and the IMF believe it will become a trillion.

You let your dog analyze several investment banks’ balance sheets and he barks it has negative equity. Meredith Whitney has just downgraded the darling of the industry, Goldman Sachs, and is talking about a pullback in lending of $2 trillion this year and more than that next year, which means $4 trillion in fewer assets to be used to generate profits.

You confirm all this data with another exquisite Caesar Salad and the broker you know who knows the banks and financial institutions as well as anyone in your universe. She tells you to look at them all, large and small, regional and national, money center and investment banks.

Time to go for it.

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