Shorting Junk Bonds
Trader Scott’s Market Blog
October 22, 2016
Shorting junk bonds can be tricky, because of the high yields. (When we’re short something which pays a dividend, we owe the owner of the security the dividend payout.) For me it’s not as big of an issue, because I only do active shorting. I never feel comfortable with short positions, so that means I don’t sit idly by while I’m in a short position – I trade in and out (hopefully) covering into weakness and then (hopefully) re-shorting into strength. At least that’s the plan. But for someone with a sitting mentality, the yields can be an issue. One alternative could be to short the sectors which would be most affected by rising junk bond yields – for instance frackers, retailers, basic materials and telecoms. But you must be just as vigilant as always about entering a short position in each respective market. Do NOT short any of these just becauseyou are bearish on junk bonds themselves. Be patient and wait for the set up. (And these ETFs also pay dividends, just not nearly as much as JNK.) Also, I have recently been discussing my concern for energy, especially crude oil and a daily crude chart andXLE – and the frackers are still in for some rough times ahead. There has been a big drop in junk bond yields since February, which has given many, many companies in diverse industries throughout the world a lot of breathing room. But that will quickly reverse, and the frackers, for one, still have some walking corpses to deal with.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.