Ultrashort exchange traded funds (ETFs) are in full focus right now as the markets remain turbulent. ProShares short and ultrashort ETFs can reduce vulnerability during a market correction when used properly. Short ETF positions will keep the overall portfolio from dropping whereas long positions cannot, reasons Roger Nusbaum for TheStreet.com.
To understand how ultrashort ETFs work, take this example: If the S&P 500 dropped 10%, and you owned the UltraShort S&P 500 ProShares (SDS), your account would increase 20% because SDS moves in the opposite direction of the S&P index and tracks the inverse performance at "twice" the force. Ultrashort ETFs provide more of a hedge than short ETFs that move in the opposite direction of an index but at "regular" force. Because short and ultrashort ETFs carry potentially higher risks and rewards, make sure they fit with your investment strategy before purchasing them.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.