Shorting means you’re betting that a stock or the overall market will go down in value.
While traditional short selling (borrowing shares and selling them) requires a margin account and carries very high risk, there are safer and simpler alternatives — especially for retail investors.
Here’s how to approach shorting responsibly at AIPicks:
1. Use Put Options Instead of Margin
We strongly recommend against using margin accounts for shorting due to the risk of unlimited losses and margin calls.
A much more manageable way to express a bearish view is by buying put options.
- A put option increases in value when the underlying stock or index falls.
- Your maximum loss is limited to the premium you paid for the option.
However, puts are still risky — you can lose 100% of the premium if the trade goes against you. Always set a clear stop-loss from day one (see the “Options” section in onboarding: “How to Set a Stop Loss”).
2. Risk Management Rules for Shorting
Follow these strict rules to protect your capital:
- Set your stop-loss upfront: Only buy puts where the premium equals the maximum amount you’re willing to lose on that trade.
- Limit position size: Never risk more than 1% of your total portfolio on a single put option.
- Avoid very short expirations: If you’re new to options, stay away from contracts expiring in less than 2 weeks — time decay (theta) can destroy the value very quickly.
3. Want to Short the Broader Market?
If you want a simple way to bet against the overall market (not just one stock), consider VXX — an ETF that tracks the VIX (the “Fear Index”).
- VXX tends to rise sharply when the market drops and volatility spikes.
- However, VXX loses value over time due to its structure, so it’s best used for short-term hedging, not long-term holding.
For a deeper understanding of how the VIX works, check the onboarding section: “Sell Signals → What is the VIX?”
Final Reminder
Shorting and using options involve significant risk. The goal is capital preservation — not trying to time the market perfectly.
Always do your own research, size your positions responsibly, and never risk money you cannot afford to lose.
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