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.

The fund managers try to identify companies with low earnings quality or aggressive accounting. [Short Bets Pay Off for Actively Managed Bear ETF]

Inverse, volatility and bear ETFs have had a tough 2012 with the S&P 500 up 16% year to date heading into Tuesday’s drop. Active Bear ETF was off 17.8% year to date, according to Morningstar. VXX, the volatility fund, had tumbled 75.7% before Tuesday’s bounce.

AdvisorShares Active Bear ETF

Full disclosure: Tom Lydon’s clients own VXX.

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