Bear ETFs On Pull Back

With leveraged inverse exchange-traded funds, betting against stocks has never been easier. And thanks to recent pullbacks in three major “bear” ETFs, betting against stocks just got cheaper, as well.

Leveraged, inverse exchange-traded funds are very popular vehicles for both short-term and long-term traders for a variety of reasons. Inverse ETFs allow traders to take advantage of falling markets by buying an exchange-traded fund instead of having to sell short individual stocks or ETFs. Even without the uptick rule, which used to be a significant factor keeping many traders from selling stocks short, the mechanics of buying assets like stocks and ETFs are much more familiar to the trading public. Thus, the development of funds that allow you to go “long” in order to be “short” are seen as a major boon.

And if inverse ETFs are a boon, then leveraged ETFs are a veritable bonanza. Leveraged exchange-traded funds not only track their underlying index, investing style or sector, but do so on a 2 to 1 basis. For example, if the underlying moved by two points, the leverage ETF would move by four.

Combining the two in the form of a leveraged inverse exchange-traded fund, would allow a trader to not only get 2 to 1 on the moves of the underlying, but would get these points on an inverse basis. Again, by way of example, if the underlying moved by up by two points, the leveraged inverse ETF would move down by four points.

One of the things that is so appealing about leveraged and leveraged inverse exchange-traded funds is that they help undo the low volatility problem that accompanies short-term trading of ETFs. The same reasons that make ETFs so attractive to longer-term traders and investors are a problem for short-term traders, who require higher volatility and greater price movement in a shorter period of time in order to make money. The leverage involved in these funds means that traders can use the same strategies they might use with stocks or regular ETFs, but will get a 2 to 1 bang for their buck (or even 4 to 1 if the trader is using margin).

This alone can make strategies that were only marginally successful with regular ETFs significantly more effective when leverage and leveraged inverse exchange-traded funds are used instead.

Today we feature three such leveraged inverse ETFs. The first fund, the ProShares UltraShort QQQ
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, is a leverage inverse fund based on the performance of the tracking ETF of the Nasdaq 100, the QQQQ. The biggest stocks in the Nasdaq are in the QQQQ, including names such as Microsoft
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, Apple
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, and Google
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. And in buying the QID, traders can bet that these stocks—