Best ways to express a bearish view


First off, I work in a sales capacity within Asset Management and by no means have the level of knowledge that some of you possess. So pardon my ignorance.

But given the markets right now, it seems like we're in the midst of a very hated bull run (Brexit, what Brexit?) with an almost risk-off sentiment, yet we are seeing stocks, bonds, gold all going up (at least today)...
This doesn't make sense to me, as some of these asset classes have off-setting relationships (ie, low correlation). My gut says something in the markets is not completely right, and that we're at an inflection point. Maybe the S&P does move higher to break 2200, or maybe we continue to trade sideways as we have been for the past 18 months.

Having said that, I am bearish with an 12-18 month horizon for multiple reasons. No one can predict a Black Swan event such as 07/08, but I think there are too many negative catalysts (China, EU, oil), no sign of growth anywhere, and an addiction to easing that has not had much success... What are best ways to implement a bearish viewpoint? I tried swing trading TVIX but that was an absolutely, horrible idea. Will never do that again.


Comments (6)

Jul 7, 2016 - 9:15am

I think thebrofessor nailed it (thank you).

There's a hedge fund out there called "Quadratic Capital" that goes long options and swaptions to express a bearish view. What the underlying is? I have no clue, but it seems like they essentially buy vol through options (Vega exposure). Would be interesting to know if there is a more clear-cut explanation for anyone who works at a similar fund.

Best Response
Jul 5, 2016 - 8:52am

I'm guessing you're bearing on global equities, but depending on your trading platform, assets, and so on, you could do a number of things:

1 - outright shorting of individual names/option writing. pros are it allows you to get very specific. cons are unlimited losses and your timing has to be right, you'll also need lots of liquidity. in practice, if you're just a college kid looking to be bearish, I doubt your trading platform will permit short selling.

2 - long a negatively correlated asset class (gold, bonds, etc.) pros are it's the safer play, cons are your appreciation potential is very limited.

3 - buy a prepackaged product to trade, like inverse ETFs or VIX ETFs. I imagine their prospectuses say how they structure their derivatives

4 - buy a fund/manager that's traditionally short (like managed futures). you don't have to do any trading, you just have to deposit money. downside is fees will eat into your return (like anything else) and you probably don't have the assets to get into one of these strategies

5 - hold cash and wait for the bottom to fall out, at which point you go long. this is the most boring of the above but is the smartest play in my opinion. but then again, that assumes your bear call is correct...

Jul 9, 2016 - 4:07pm
Then out spake brave Horatius, The Captain of the Gate: "To every man upon this earth, death cometh soon or late. And how can man die better than facing fearful odds, For the ashes of his fathers, and the temples of his Gods."
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