The Valuable Role of Short Sellers Preparing for the Worst by Hedging

Lack of Commitment on the Short Side Hurts Offensive Position

Without having a commitment to the short side, it’s difficult to be offensive when you should be. The highest-return opportunities are available when markets are in free fall, but if you’re getting shelled, you may not have the emotional conviction to be aggressively opportunistic and you may not even be able to do it, because of redemptions. Being able to be offensive when everybody else is defensive, in and of itself, can yield excess returns.