ETFs designed to bet against stocks rallied Tuesday as the Dow Jones Industrial Average plunged over 200 points on weak third-quarter earnings and enduring fears over Europe’s debt crisis.
For example, ProShares Short S&P 500 (NYSEArca: SH) was up nearly 2% in late-morning trading. The inverse ETF provides 100% of the opposite return of the S&P 500 on a daily basis, after fees and taxes. The fund has about $2 billion in assets.
There are also leveraged inverse ETFs that magnify the market’s return in the opposite direction, such as ProShares UltraShort S&P 500 (NYSEArca: SDS). It seeks daily investment results that correspond to twice, or 200%, of the inverse performance of the S&P 500.
These ETFs are designed as trading vehicles that let investors hedge or speculate on market pullbacks. They’re not meant for buy-and-hold investors.
Volatility-linked exchange traded products also traded higher in Tuesday’s sell-off. The iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) added about 8%. The exchange traded note tracks the performance of futures contracts based on the CBOE Volatility Index, Wall Street’s fear gauge. [Bearish Options Trading in VIX ETF Reverses Long-Term Trend]
Elsewhere, AdvisorShares Active Bear ETF (NYSEArca: HDGE) climbed 1.5% at last check. It’s an actively managed ETF that bets against stocks by shorting them.