We all love to think positively, and stock traders are no different. But there can’t be good news all the time, and investors who strategize well make use of even the bad news to develop strategies to grab some gains.
The stock market recovery from the lows of the Covid-19 pandemic is continuing in the midst of some volatility and rough times. While there may be many who hold the view that there could be more trouble ahead, there is a celebrated short seller who believes there is a great short trading opportunity developing in the market before big trouble comes along.
Celebrity Short Seller Sees an Opportunity
We’re talking about Jim Chanos, whom MarketWatch reports has just made a winning bet worth $100 million and is now predicting a gloomy situation for the market. Chanos became famous with his strategy of shorting Enron that turned out to be a big winning move. He recently earned a nine-figure income by shorting Wirecard before it collapsed.
These exploits were mentioned in a report by Financial Times, to whom he gave an interview expressing his recent shorting of Tesla ($TSLA), believing that there is a winner there, though currently, that doesn’t seem to be the case. But he believes that’s how it is with short selling usually. You need to keep waiting for weeks, and probably even months before what you predicted happens. That makes you feel better.
The Short Selling Concept
So, here’s a quick refresher on what short selling is. If you believe the market is heading for a dip, you could make money by short selling. What you do is borrow a stock and sell it for its current price. When the price eventually drops, you buy that stock at the lower price before giving it back to the lender. You make a profit from the difference between the price you sold it for and then bought it back. It’s the opposite of the usual practice of buying a stock at a low and selling it high. This strategy needs to be planned and works only for the short term because eventually, the market would go up. But in the short term, Chanos reckons the market would soon be in a dip and Tesla would be among those stocks to suffer.
Why Chanos Chose Tesla for Shorting
Tesla may not appear to be much of the kind Chanos expects, but he is of the firm belief that eventually, it will. With assets worth $1.5 billion under management, Chanos probably has the experience to know. He believes bad times are on the way, and what Musk did is to portray a great image for his company through “aggressive accounting”. He also thinks that euphoria is driving the market and therefore cannot be taken at face value. The celebrity investor’s Kynikos Capital Partners fund, employing a long/short equity strategy has managed to provide a gain of 22% a year all through the past 35 years. It has also doubled its S&P 500 return.
If you’re thinking of short selling, you can really benefit from the advanced short locates platform provided by TradeZero.co along with advanced direct market access and other features.
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