21 Ways to Aggressively Short This Market

by Jeff Reeves | June 24, 2013 12:13 pm

Think the correction is the beginning of some bigger downturn? Well, put your money where your mouth is with inverse ETFs that can generate two times or even three times the profits of a short-side strategy.

Just be sure you are confident in your strategy — because three times the profits can turn into three times the losses in a hurry should you bet wrong.

Inverse funds, also known as short ETFs, are simple in concept: They are designed to go up as the underlying assets go down.

Leveraged short funds go one step further. Through a complex investment strategy that involves derivatives and futures contracts, a company makes big-time directional bets on the market that a typical retail investor cannot. These amplify the power of the bet.

The profits get bigger and the losses get bigger, too, so in a fast-moving market you can easily see a double-digit swing.

Here’s a practical example: The Direxion Daily Large Cap Bear 3X Shares (SPXS[1]) is pegged to the S&P 500. Theoretically, it is supposed to go up three times what the S&P loses in a given day. So if the S&P is up 1%, the SPXS fund loses roughly 3%. If the S&P is down 2%, the SPXS gains roughly 6%.

Note the use of the word “roughly” — Expenses and other logistical constraints mean the 3x multiplier is not exact, but it’s pretty close.

Consider that in the past week, the S&P 500 Index is down almost 5%, and the SPXS fund is up 14%. Not quite three times, but pretty close — and a very nice return.

Of course, if the S&P soars, the pain will be threefold, too … but investors who bought in a week ago are sitting pretty.

If you’re looking for the other side of the trade in the event of a downward-trending market, here are some short funds with leverage that could pay off in the short-term:

2x Short Funds

3x Short Funds

Remember, the added volatility can hurt you by double or triple if you bet incorrectly. It’s also worth noting that the expense of these short funds can really wear at you long-term and that the leverage is commonly done on a daily basis, not over time, so buying-and-holding is not advised.

But the above list is worth browsing for aggressive investors looking to play the downside of the market, either as speculation or as a hedge.

Related Reading

Jeff Reeves[26] is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[27] Write him at editor@investorplace.com[28] or follow him on Twitter via @JeffReevesIP[29]

Endnotes:
  1. SPXS: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPXS
  2. DXD: http://studio-5.financialcontent.com/investplace/quote?Symbol=DXD
  3. MZZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=MZZ
  4. QID: http://studio-5.financialcontent.com/investplace/quote?Symbol=QID
  5. SJL: http://studio-5.financialcontent.com/investplace/quote?Symbol=SJL
  6. SDK: http://studio-5.financialcontent.com/investplace/quote?Symbol=SDK
  7. SJF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SJF
  8. SFK: http://studio-5.financialcontent.com/investplace/quote?Symbol=SFK
  9. TWM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWM
  10. SKK: http://studio-5.financialcontent.com/investplace/quote?Symbol=SKK
  11. SJH: http://studio-5.financialcontent.com/investplace/quote?Symbol=SJH
  12. TWQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWQ
  13. SDS: http://studio-5.financialcontent.com/investplace/quote?Symbol=SDS
  14. SDD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SDD
  15. MIDZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=MIDZ
  16. TZA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TZA
  17. SQQQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=SQQQ
  18. SDOW: http://studio-5.financialcontent.com/investplace/quote?Symbol=SDOW
  19. SPXU: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPXU
  20. SMDD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SMDD
  21. SRTY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SRTY
  22. some warnings about leveraged and inverse ETFs: http://www.sec.gov/investor/pubs/leveragedetfs-alert.htm
  23. here’s its full list of products: http://www.proshares.com/funds/
  24. Here’s Direxion’s list, too: http://www.direxionfunds.com/products
  25. how (and whether) you should trade inverse funds: http://online.wsj.com/article/SB10001424127887324640104578163400250196938.html
  26. Jeff Reeves: http://slant.investorplace.com/author/profile/jeff-reeves/
  27. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/dp/B007KB9CSI/ref=rdr_kindle_ext_tmb
  28. editor@investorplace.com: mailto:editor@investorplace.com
  29. @JeffReevesIP: http://twitter.com/JeffReevesIP

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