“When you short individual securities, what do you use as hedges against quick market moves if the market were to go up in that particular stock?”
Calamos Co-CIO Michael Grant, Head of Long/Short Strategies and Senior Co-Portfolio Manager, happened to be on a call with investment professionals last week during the retail trading frenzy involving GameStop and other affected stocks, and so this question was to be expected.
“The first thing we look at,” Grant answered, “is simply the size of the company, and the degree to which it can be manipulated by many of the social media crowds that are following these stocks. We’re not short anything that is what I would describe as small.”
“The key risk tool is ensuring that you properly size your short. If you do that properly, then ultimately the degree of damage that can occur from being wrong is limited.”
Calamos Co-CIO Michael Grant, Head of Long/Short Strategies and Senior Co-Portfolio Manager
The second point he made relates to sizing. “The key risk tool is ensuring that you properly size your short. If you do that properly, then ultimately the degree of damage that can occur from being wrong is limited,” Grant said.
Finally, he said, “We have very, very strict guidelines around when we can cover shorts. If we're uncertain about volatility in the short term, then we will use option strategies, in some cases to protect those positions.”
“In fact, through December and into January,” Grant added, “we had been using a number of 1x2 call spreads. These are for names that we don't favor, and can see the logic fundamentally for being short. But we're concerned about the very issue that you present.
“The 1x2 call spread enables us to benefit from a short-term upward movement in the stock before we establish a short. Ultimately, it raises our entry point into that short position,” explained Grant.
The bottom line, he concluded, is that “you’ve got to get your fundamentals right, but you also have to be very mindful, technically, of the kind of stock that you're getting involved with.”
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe information provided here is reliable, but do not warrant its accuracy or completeness. The material is not intended as an offer or solicitation for the purchase of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and is not intended to provide—and should not be relied on for—accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The securities highlighted are discussed for illustrative purposes only. They are not recommendations.
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Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower.
Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower.
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