Stocks ticked slightly higher in early trading, looking to recoup some of the losses of the past few sessions. Investors have sold off heavily since last Friday’s hawkish remarks from Fed Chair J. Powell, erasing gains from earlier in the month and sending the market into negative territory. The Dow and the S&P 500 were on course for their second negative month in three months, while the Nasdaq Composite was on track for its fourth negative month of the past five months.
Today we’ll discuss a short-term play that allows shareholders to benefit from market backslides. This valuable tactic can be used as a hedge and also to generate quick profit when things take a turn. Unlike short-selling, the risk associated with this tactic is limited, in theory making it a safer option.
A Return to Normal? PhD Economist: “Don’t Bet on It”
According to former Goldman Sachs executive, Nomi Prins…
Americans who are hoping for a ‘return to normal’ are going to be shocked when they see what happens next in America.
She says, “If you’re betting your job, savings, or retirement accounts on a return to ‘normal’ you’re about to be left behind by a brand-new crisis few see coming.”
Go here now to see America’s next crisis
Traders who are looking to benefit from sliding stocks often turn to short-selling. The main risk of traditional short-selling is that while profit is capped (a stock can only fall to zero), the risk is theoretically unlimited. Of course, other tactics can be used to cover a position at any time, but with a short-selling position, inventors risk receiving margin calls on their trading account if their short position moves against them.
Inverse or “short” ETFs are another option that allows you to profit when a particular investment class declines in value. Some investors use inverse ETFs to profit from market declines, while others use them to hedge their portfolios against falling prices.
Over short periods, you can expect that the inverse ETF will perform “the opposite” of the index over short periods, but a disconnect may develop over more extended periods. Inverse ETFs will decline as an asset appreciates over time. For that reason, inverse ETFs typically are not seen as good long-term investments. Furthermore, frequent trading often increases fund expenses, and some inverse ETFs have expense ratios of 1% or more.
When approached correctly, inverse ETFs can be excellent day-trading candidates and highly effective short-term hedging tools. There are several inverse ETFs that can be used to profit from declines in broad market indexes, such as the Russell 2000 or the Nasdaq 100. Also, there are inverse ETFs that focus on specific sectors, such as financials, energy, or consumer staples.
With $4 billion in assets, the ProShares Short S&P 500 (SH) is the largest inverse fund by value. Commonly used by investors as a hedging vehicle, the fund strives to deliver the inverse performance of the S&P 500 (SPX). If you’re concerned about the stock market falling, this fund moves in the opposite direction of the largest 500 U.S. corporations and is the simplest way to protect yourself.
It’s important to note that SH is designed to deliver inverse results over a single trading session, with exposure resetting every month. Investors considering this ETF should understand how that nuance impacts the risk/return profile and realize the potential for “return erosion” in volatile markets. SH should definitely not be found in a long-term, buy-and-hold portfolio. The fund comes along with an expense ratio of 0.9%.
Where to invest $1,000 right now...
Before you consider buying SH, you'll want to see this.
Investing legend, Keith Kohl just revealed his #1 stock for 2022...
And it's not SH.
Jeff Bezos, Peter Thiel, and the Rockefellers are betting a colossal nine figures on this tiny company that trades publicly for $5.
Keith say’s he thinks investors will be able to turn a small $50 stake into $150,000.
Find that to be extraordinary?
But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
“Card-Sized” Battery Set to Blow Lid off the Electric Vehicle Industry
This tech company’s new EV battery is so small and light, experts predict it may spur 1,000% growth in EV sales. Watch this stock.