While many expect the Federal Reserve to push off on a rate hike, there is still a chance of a higher interest rate announcement next week. The change will have wide reaching effects and weigh on many markets and exchange traded funds.
The markets currently predict a one in four chance that the Federal Open Market Committee meeting will announce tighter rates on September 17, reports John Authers for the Financial Times.
Nevertheless, ETF investors can utilize bearish or inverse options to hedge against potential risks.
Specifically, higher interest rates will have an effect on commodities and currencies. A tighter monetary policy will directly strengthen the U.S. dollar, which would pressure assets priced in dollars.
On the other hand, a strong dollar would weigh on commodities. ETF investors can hedge against weakness in the commodities space with the DB Commodity Short ETN (NYSEArca: DDP), which takes the simple short position on a group of diversified commodities, and the DB Commodity Double Short ETN (NYSEArca: DEE), which takes the two times the inverse position on a basket of commodities. Additionally, the ProShares UltraShort Bloomberg Commodity (NYSEArca: CMD) also takes the daily -2x or -200% performance of the Bloomberg Commodity Index.