Strategies for Short Selling ETFs
Yesterday there was a short signal on IYT on the close. Unfortunately many brokers did not have shares available to borrow in order to get the short position off. How do you deal with such a situation?
There are a few solutions.
You can trade the inverse of the ETF. In IYT’s case, there was no inverse so therefore this couldn’t be done. But in most ETFs an inverse exists and within time more inverse ETFs will be coming to market.
If there is no 1x inverse, you trade the 2x inverse with 1/2 the dollar amount. Therefore if you wanted to short the FXI (China) and couldn’t borrow the ETF, you would go long 1/2 the dollar amount of FXP which is the 2x inverse of FXI.
Open multiple brokerage accounts. This means sprinkle money with a few brokers. You’ll use these accounts for your short selling. If your primary broker doesn’t have the ETF, you go to your secondary brokerage accounts in order to potentially get the trades off. I’ve seen times where we couldn’t borrow stock from Goldman, yet eTrade had the stock available (go figure). There are many factors that go into whether or not a firm has shares to borrow and having a few secondary accounts as back-up gives you greater flexibility in being able to borrow stocks and ETFs.
These are three possible solutions. If you know of any more, please let me know and I’ll share them with everyone over the next coming days.
Special Note: I’m doing a 45-minute online presentation on Wednesday at 4:30 on the ETF Trading Course I’m conducting late next week. The seminar will focus on TPS, a strategy I introduced in our new book High Probability ETF Trading. TPS is the strategy I use that has provided the Model Portfolio in my Daily Battle Plan with 17 out of 19 winning ETF trades so far this year.
If you’d like to attend this free presentation please call 1-888-484-8220 ext. 1 or click here to register. The cost of the seminar is $4995 and will be conducted online Saturday June 13 from 10-4 pm ET. We expect 75-100 traders to attend and it should be quite helpful to your ETF trading.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.
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