I have been pondering who was shorting UBER. Hedge funds bet big on it, retailers would only be long, most institutional are long only, and that leaves the question who was on the short side?
While it is possible that some hedge funds reversed to short based on new information, I think most likely the banks that issued it were short while hedge funds, institutional traders, and retailers were long. If true, it means those banks will be buying it back.
I think the primary sellers would be banks and non traditional traders/early investors taking profit. While, it is easy to imagine retail traders selling, I am not so sure they were the ones panicking. Please comment if you have measurable information on the topic.
Now, why is this consideration topical? First, if the original analysis that the traders developed was valid then it is a higher probability that the thesis of UBER outperforming could be valid.
I am tending to lean that those who bought, overcrowded a good trade and that combined with UBER’s one-time larger then expected losses caused a temporary flush out.
If the market is returning to favor risk assets (RISK ON) then one might anticipate risky, junk, and beat down issues to fly while safer stocks might start to relatively under-perform. This would be an interesting quant study.
Curtis is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact him at email@example.com.
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