October 01, 2008 at 1:00 am by Tom Lydon
Short exchange traded funds (ETFs) are especially of interest right now, given the market conditions and circumstance.
Short ETFs give investors the opportunity to profit in down markets, and they also allow maximization of returns in up markets. Taking a short position is simply the sale of a security or ETF in hopes that the asset will fall in value. This has been occurring all over the stock market lately.
Investopedia’s example is an investor who borrows shares of stock from a broker, and sells them on the open market. Eventually, the investor must return the borrowed stock by buying it back from the open market, and is the stock, or ETF, falls in price, a profit is made.
It sounds simple, but there are many risks that are attached to these types of sales. Risks include high volatility, the potential for bigger losses, so make sure that you know what is involved. Short selling is a tool for speculation and a way to take advantage of high volatility in a stock market.
Some of Monday’s winners for the short ETFs:
- ProShares Short MSCI EAFE (EFZ): up 10.27% one day
- ProShares Short S&P 500 (SH): up 8.28% one day
- ProShares Short QQQ (PSQ): up 8.43% in one day
Tags | Dow Jones Industrial Average, EFZ, PSQ, SH
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October 1st, 2008 at 7:38 am
Here’s another risk: that the ETF stops tracking its index. SKF (ultra-short financials) is clearly a victim of SEC market manipulation, but SRS (ultra-short real estate) is also vastly underperforming any -2x linear combination of its components. Does this mean Barclays is incompetent, or is something else at work?