Long-Short Portfolios Made Easy (DXD, SDS, QID, DUG, TWM, MZZ, FAZ, DPK, EDZ)
Given the equity market’s long-term trend of appreciation, expenses tied to margin debt and dividend payments, and the potential for a call on outstanding positions, short-selling is a great way for amateur investors to get in over their heads. However, that doesn’t mean they can’t bet against the market to either hedge long positions or profit from an equity pullback.
A look at the Leveraged ETFs Index shows that there are a number of so-called reverse ETFs designed to track the inverse of a particular sector or benchmark. Today, as the Dow extends it’s recent slump, investors are earning 2% with the UltraShort Dow30 ProShares (DXD), which tracks twice the inverse of the DJIA. Meanwhile, the UltraShort S&P500 ProShares (SDS) and UltraShort QQQ ProShares (QID) are also in positive territory as the respective S&P 500 and Nasdaq indices sink lower.
Brokerage fees, ex-dividend dates, and the hassle of unwinding a long-only portfolio can disincentivize profit-protection in the event of a market downturn. If intuition suggests that a bear market is approaching, these downsides may be worth enduring, but in cases of a short-term market dip, short-selling ETFs are a great way to limit aggregate losses. Investors who bought the UltraShort Oil & Gas ProShares (DUG), UltraShort Russell2000 ProShares (TWM), or UltraShort Midcap400 ProShares (MZZ) a week ago are now ahead by more than 8% on the positions.
Day-traders have a number of 3x ETFs to help leverage ultra-short-term bets. Today the Direxion Shares ETF Trust Financial Bear 3x (FAZ), Developed Markets Bear 3X Shares (DPK), and Emerging Markets Bear 3X Shares (EDZ) are all ahead by more than 3% as their respective sectors head south, but investors should note that given their high volatility, these instruments are recommended for day-trading purposes only.
Investors can track the Leveraged ETFs Index for performance trends and a suite of other metrics at tickerspy.com.
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