The logical and natural way to start playing HSX is probably to buy stocks that you think will go up and sell them when you think they have reached their maximum price. But HSX also offers the opposite way of investing, called shorting. In real stock markets, shorting is a complicated concept, but luckily we don’t have to care about that here. In fact, if you know about real-life shorting, it’s probably easier to just forget what you know before you read on.

If you think a stock will fall in price, you short it. When you think it has reached its minimum, you cover it and recieve the original investment plus your profits. It’s that simple, and it means that you can play both the ups and the downs of the market. Now, let us look at some specific shorting opportunities:

Most importantly, we have the opening weekend. Friday afternoon before halt, stocks will be priced at the average expected adjust and should have equal chances of adjusting up or down. If you think it has a better chance of adjusting down, you short it of course.

StarBonds are meant to go up and down, based on the changes in their TAG (Read the bond rules if you need to know how they work). This makes shorting a natural and, indeed, necessary part of bond trading if you want to take advantage of all investment opportunities.

MovieStocks are usually IPOed at a price lower than the expected adjust and, as such, they are principally longs. However, they often tend to go down in periods with no news. This means that speculative IPOs can be worth shorting until casting news and production start. Movies that are expected to be released limited are rarely IPO’d lower than H$4.00 and can be as high as the mid-teens, so in some cases they will be worth shorting from day one. This is especially true if they have a release date, so you know when you can cash in your profits.

There are also money-in-the-bank opportunities. In the period between release and delist of a MovieStock, you have a reasonably good chance of predicting its cash-out price. If the current price is considerably higher than the expected cash-out, you can short it and make money. In particular, the small limited releases often offer really good returns percentage-wise. A lot of them will gross less than a million and thus cash out below H$1.00, but the price rarely reflects this when the film opens.

A related shorting opportunity is when stocks cash out at zero. This happens regularly when movies debut on cable TV or video (known as STC and STV) and – less often – if a movie hasn’t found distribution three years after completion or a project has been declared officially dead. Remember that if you short a stock that cashes out at zero, the profit will be 100% – you get your investment back, plus the profit which is investment minus the cash-out price of 0.

TV and video premieres can be played if you follow the TV and video schedules or, more easily, by keeping an eye on our release schedule which tries to keep track of them. Delist of completed movies with no distribution is announced a week ahead on the HSX calendar and can be played then or you can do a lot of research and short them earlier. Stocks for projects that are declared officially dead by the studio delist on random Tuesdays and aren’t announced in advance so shorting them is much like playing the lottery. For smaller ports, it’s probably wiser to just stay away from these.

Other securities that can cash out at zero are the weekly opener options. The options have a strike price and if the movie opens over the strike price, the put will cash out at zero. If the movie opens under the strike price, the call will cash out at zero. However, shorting an option is also risky. If the strike price is $20 million, shorting the call at H$2.00 means that you bet that it will open below $22 million. You may have good reasons to believe that, but consider a breakout hit that makes $30 million: the call will cash out at H$10 and you lose H$8 or 4 times the investment.

The price of the option matters though. While it may be dangerous to short the option at the IPO price H$2.00, it may make sense if it’s priced at H$8.00. In this example, the loss would only have been H$2 or 1/4th of the investment when the option cashed out at H$10.00 and the potential gain was bigger. Also consider that the risk is bigger, the higher the strike price is. For small movies, it should be quite possible to predict the opening within a couple of million. For blockbusters, a couple of million isn’t much. For this reason I may short an option with the strike price of $5 million, but for strike prices at $20 million or more, I’m more likely to buy both options at IPO – and then I may reconsider as we get closer to the opening and the option price may have spiked.

No matter what kind of security you have shorted, you should know the concept of reshorting. Consider this: You have shorted a stock at H$40 and it has gone down to H$30. You cover the stock and recieve the H$40 you invested plus H$10 in profits. Now you short the stock again at H$30 and suddenly you have H$20 extra cash in your port. It isn’t magic and your net worth didn’t go up H$20, but it’s extra cash that you can invest to make more profits.

In the commission free period on the weekend, it’s free to reshort, but as long as commission is on, you pay 50 cents for covering and 30 cents for reshorting in the example above, which means that you have paid 80 cents for the extra H$20 in cash. If you really need the cash during the week, you’ll want to look at the profit percentage taking the highest percentage first. That way you’ll pay a smaller commission for your cash. In the commission free period, you’ll just want to free up as much as possible, and you go for the biggest profits in dollar value. Notice that you can sort your port after profits and then just go ahead and reshort from the top.

If you want to understand more, Tom Miller has written an excellent column with a more technical look at HSX shorting.