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9 Etfs To Play A Big Move Lower

 August 18, 2011 10:03 AM


Editor's Note:  Teeka is on vacation this week.  In light of the warning that Chris Rowe issued yesterday, below you'll find 9 different ETFs that Teeka first wrote about in 2009 which can be used to play a move lower in the broad markets.  Please note, however, that since these were originally published in 2009, this does not necessarily constitute a current recommendation from Teeka.  As always, you should do your own research prior to investing in any security.

Exchange-Traded Funds are a terrific tool for getting short. You can buy an inverse index ETF or simply short a regular index ETF.

Remember, inverse ETFs go up as the index they track goes down. The big advantage of inverse ETFs is that they can be bought in IRA accounts, which would otherwise restrict direct shorting.

I'm going to share a few ETF ideas with you, broken down by index.

DOW JONES INDUSTRIAL AVERAGE

Dow Diamonds (DIA) -- This is a bullish ETF that mimics the movement of the Dow 30 stocks. To profit from a downward move in the Dow, you can sell it short or buy put options.

ProShares Short Dow 30 (DOG) -- This aptly named ETF is an inverse ETF and can be purchased in an IRA. As the Dow goes down, this ETF goes up.

It's similar to shorting the Dow Diamonds. If you're looking to play options on an inverse ETF, you would buy calls because the ETF rises as the index it follows goes down. That's an important distinction!

ProShares UltraShort Dow 30 (DXD) -- This is an UltraShort ETF on the Dow 30. The word "ultra" means that this is a leveraged ETF. That is, this ETF delivers 200% of any move in the Dow.

Because it is a short ETF, if the Dow goes down 1%, this will move up 2% ... and vice versa. Leveraged ETFs are really meant for daytraders and experienced market participants. They also trade options and you would use call options on the DXD if you believed that the Dow was going lower.

S&P 500

SPDR S&P 500 ETF (SPY) -- These are affectionately known as "the Spiders." This is a bullish ETF that mimics the movement of the S&P 500. To profit from a downward move in the S&P 500, you can sell the SPY short or buy put options.

ProShares Short S&P 500 (SH) -- As the S&P 500 goes down, this ETF goes up. It's the equivalent of shorting the Spiders. As above, if you're looking to play options on an inverse ETF, you would buy calls. Remember, an inverse ETF rises as the index it follows goes down.

ProShares UltraShort S&P 500 (SDS) -- This is another UltraShort ETF, but this one covers the S&P 500. Again, the word "ultra" indicates that this is a leveraged ETF. This ETF delivers 200% of any move in the S&P 500.

Because it is a short ETF, if the S&P goes down 1%, this will move up 2% ... and vice versa. SDS also trades options; you would use call options on SDS if you believed that the S&P 500 was going lower. However, buyer beware: Trading leveraged ETFs is a big boys/girls game and is not for the faint of heart.

S&P MIDCAP 400

S&P MidCap 400 SPDR (MDY) -- This is a bullish ETF that mimics the movement of the S&P MidCap 400. To profit from a downward move in this index, you can sell MDY short or buy put options.

ProShares Short MidCap 400 (MYY) -- As the S&P MidCap 400 goes down, this ETF goes up. It's the equivalent of shorting the MDY. As above, if you're looking to play options on an inverse ETF, you would buy calls. Remember, an inverse ETF rises as the index it follows goes down.

ProShares UltraShort MidCap 400 (MZZ) -- This is an Ultra Short ETF that covers the S&P MidCap 400 index. Again, the word "ultra" denotes that this is a leveraged ETF. This ETF delivers 200% of any move in the MidCap 400.

Because it is a short ETF, if the MidCap 400 goes down 1%, this will move up 2% ... and vice versa. MZZ also trades options; you would use call options on MZZ if you believed that the MidCap 400 was going lower. Remember; buyer beware: Trading leveraged ETFs is a big boys/girls game and is not for the faint of heart.

In 'Short' ...

Nothing is 100% guaranteed, so remember to have your stop-losses in place, just in case the market staves off the devastation that appears to be brewing on the horizon.
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