Seriously, guys: stop trying to Short the S&P500

I was reading this thread  today when I thought, “Man, there are some dumb people out there.”

If for some reason you cannot read Reddit, let me sum up the thread for you:

From a technical standpoint, SPX did not even hit or test 2057 (~205.9), which was a key level on Friday. This is good news for bears. Also, the last few minutes showed good strength from the bears. It’s crucial to break the 2048-2050 channel, but closing on it is still good progress.

I tried to make sense of this statement for nearly an hour before giving up. Of course, everyone knows my position on technical analysis (or “quacks”), but come on: you have to admit that even for Reddit, this is dumb as fuck. Let me show you why:

From a technical standpoint, this roulette did not give two reds in a row in the last 10 spins, which was a key level. This is good news for people betting on red. Also, the last few spins showed good strength from the red players. It’s crucial to break the 3-4 reds channel, but closing on it is still good progress.

The rest of the comments are about idiots who bought puts on the SPY, the largest S&P500 index ETF.


Of all the stupid things you can do in your life, shorting the market has to be among the dumbest.

You aren’t going to make money consistently shorting the market. Period.

You might get lucky once or twice, but overall, you’re bound to lost money going short on the S&P500. Why? Because the market always move up over the long term. Not only that, but by shorting, you will have some kind of decay and/or borrowing fee. If you buy puts for instance, you will lose money every day to time decay. Even if the market does go down, you might end up losing money anyway.

Again, you might get lucky once or twice, but over the long term, you’ll lose everything. Believe me: people smarter and better-equipped than you have tried. They failed. Some people have been shorting the S&P500 since 2012. “Greece will implode! China will implode! Europe will implode! Canada will implode!” Guess what, it never worked.

A friend of mine just lost his entire bankroll shorting the TSX when it was at 12,200. When it broke through 12,000, he can convinced the next great crisis was on us. It rallied to nearly 14,000 and half his puts expired worthless, the other half being worth 10% of what he paid for them (at this point, he’s just keeping them out of spite).

But but but I can time it over a week and play the short term variance! No you can’t. I don’t know why you believe that you can time the market and decide that “yeah, this week, it’s falling,” but you can’t. You don’t see the future, period. Whatever your source or reasons are, you CANNOT profitably short the S&P500. Period. But an article I read... That article is meaningless in the grand scheme of things. And by the time you read it, multi-billion hedge funds have known about it for a month.

But but but I know it’s going to go down!

No you do not. Shut up.

But but but we are due for a pullback.

We are not “due” for anything. Shut. Up.

But the bull market has been going for 7 years! We are due for a be…



If you absolutely must short something, short a sector, preferably one with little future (mines, manufacturing, etc.). Better yet, short a triple-leveraged ETF, so if for some reason you think the biotech sector will go down, short a bullish biotech ETF. Even if the market doesn’t go down, you’ll make money (as long as it doesn’t go up too much).

There are three kinds of people who short the S&P: risk managers for big portfolio, traders with insider information and idiots. Hint: you are not among the first two categories.

Do not go short the market, not even short term.


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One Response to Seriously, guys: stop trying to Short the S&P500

  1. Martingale May 25, 2016 at 4:12 am #

    I think that this article is sensible. We try to avoid going short on any market/index/currency/futures, etc.

    A good (but not foolproof) suggestion is that one holds a long position on the underlying and typically enter into call options on a volatility index (VIX). If the market goes down, which increases the latent(hidden) volatility (opposite seems to happen for commodity markets), then a person is afforded some downside protection.

    There are many such strategies, unfortunately no matter how clever we are, it is still difficult to make profits in any markets (above market return). That is why I love risk management, it is easier to keep yourself from losing money than it is to speculate on the market.

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