Dedicated Short Bias

It sounds like a hate group focused on race-horse jockeys. But in reality, dedicated short bias represents a form of hedge fund strategy.

There are two basic kinds of bets in the stock market (or any market, really): long and short. “Going long” refers to a bet that the stock will go up. “Going short” refers to a bet that the stock will go down.

A hedge fund with a dedicated short bias builds positions so it can take advantage of a market decline. It’s a hedge fund for pessimists.

The bias of the fund might target the short side, but that doesn’t mean that every position held is a downward bet. The fund might set some long bets, either as a hedge, or as an alternative way to capture a downward move.

For instance, share prices for airlines tend to move in the opposite direction as oil prices. Jet fuel represents a major expense for air carriers, so the price of oil plays a big role in how much profit an airline can earn. So everything else being equal, high oil prices will put pressure on airline stocks and low oil prices give shares a boost. So if you want to take a short position on oil (like if, say, you were running a dedicated short bias hedge fund) you could accomplish this by going long on airline stocks. A drop in oil would mean a rise in your shares.

The long position in airline stocks allows you to profit on your short bias toward oil.