What is Flip
A flip generally refers to a dramatic directional change in the positioning of investments. In technical trading it is commonly known as a shift from having more long positions to having more short positions, or vice versa. Broadly, it can also refer to a real estate investing strategy or an initial public offering (IPO) investment strategy in which the investor owns assets for a short time and then sells them for a profit.
BREAKING DOWN Flip
A flip can be an effective way to generate profits from a new technical trend. In technical trading a flip will typically involve moving from a net long position to a net short position. Many investors may also use flipping strategies to generate quick profits from selling real estate or initial public offerings after short term ownership.
Technical Flip Trading
In technical flip trading an investor can flip their position from net long to net short or vice versa in order to benefit from a new trend. In a net long to net short flip an investor could sell put options at various strike prices on their underlying holdings to benefit from falling prices. In the opposite scenario an investor would increase their long positions in a security betting on price increases. These strategies allow traders to profit from price reversals occurring from a security investment over time.
Flip trading can be used in all types of investments. Many technical traders find flip trading to be very effective for currency markets. Investors with advanced data feeds will often follow the long and short positions on a security which can also provide insight for the market’s future outlook and the potential profit from flip trading
Flipping for Quick Profits
Beyond technical trading there are also various scenarios where an investor can flip their positioning to earn a quick profit. Generally these strategies are developed with the intention of flipping at a certain time in the future. Real estate and initial public offerings provide two common scenarios in which flipping can be profitable.
In house flipping an investor buys a home at a low price. This investor has the ability to renovate the home to increase its value. After renovations the investor relists the home for a higher price and sells it for a profit.
IPO investing follows a similar strategy. An investor buys a security at a low IPO price. Instead of following a buy and hold strategy the investor follows the price and sells it outright on the open market for a substantial profit.
In macro funds that seek to follow broad market trends, flipping may also occasionally be used. If a macro fund manager believes potential losses are high in a certain sector they may choose to flip those assets to a more profitable sector. This type of flipping can also be used by investors who take a macroeconomic approach to managing their portfolios. Flipping from at risk sectors to sectors with greater return opportunities can be important in mitigating certain systemic or idiosyncratic risks.