February 17, 2008 at 1:00 am by Tom Lydon
Short exchange traded funds (ETFs) are meant to head up as the market heads south – something it seems to have been doing a lot of lately.
The ProShares UltraShort S&P 500 (SDS) and Rydex Inverse 2x S&P 500 ETF are (RSW) no exception, especially as they are designed to deliver twice the opposite performance of its underlying index. The S&P has had some upswings in the last several months, but overall, it’s on a downward trend:
- In the last month, it’s lost 1.7%
- Over three months, it’s down 7.5%
- Year-to-date, it has lost 8.1%
Mike Paulenoff at MPTrader predicts that the SDS should climb some more, and he’s using it to hedge a few long positions.
Although they are good options for investors looking to continue making gains while the market is on a downward trend, it’s always wise to be aware of the risks involved when it comes to short ETFs. The potential to win big is there, but you could crash and burn, too, if caution isn’t exercised. Always make sure they are right for your portfolio.
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.
Tags: S&P 500
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