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I have a strategy where I short index ETF worth 80% of my portfolio, it shows up in leverage because I've borrowed the asset to short, but now I have 1.8 times the initial capital because of short selling, and that capital is used for rest of portfolio which is long-only

So now I'm holding 180long-80short. How does one actually becomes Dollar neutral?

It may sound like a silly question, but it is confusing me a lot.

Thanks

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  • $\begingroup$ you need to borrow 100 to fund your long position rather than pay in cash $\endgroup$ – hjw Oct 18 '18 at 10:15
  • $\begingroup$ Don't buy 180 of longs, just buy 80 and you will have zero net exposure (80-80=0) and 160 of gross exposure (80+|-80|=160).Which will be well within Prime Broker limits on leverage. You will have excess cash, which is fine, and in fact a good idea. You don't want to be at max leverage obviously, but have some slack. $\endgroup$ – noob2 Oct 20 '18 at 2:30
  • $\begingroup$ When you sell securities you do not get "extra capital" but extra cash. The capital comes from your investors initially and only changes because of your net profits over time. $\endgroup$ – Alex C Oct 22 '18 at 1:08
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You should have bought your (long) stocks with the proceeds of the ETF sell.

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