| Proshares
offers 29 short exchange-traded funds that let you bet against the
broad market and specific market sectors. When stock prices fall,
a short ETF goes up in price. For example, if think that technology
stocks are going to decline, you would buy the Short QQQ (PSQ)
that tracks the NASDAQ or UltraShort Technology (REW)
that tracks a basket of technology stocks. As technology stocks
decline, the price of these technology-oriented short ETFS will
increase. When you decide the downside is over, you would sell the
short ETF for a profit. Proshares offers 18 market-based short ETFs
and 11 sector short ETFs.
Another use of a short ETF is to hedge your portfolio against a
decline in stock prices. If you are the nervous type, who does not
like to experience a paper loss, you can buy an ETF and hold it
as stock prices fall. Depending on how much your stocks drop in
price and how much of the short ETFs you buy, you could ride out
a stock decline with little or no decline to your portfolio's dollar
value.
Short ETFs are not intended to buy and hold for long periods because
they decrease in value as prices rise. So if you purchase a short
ETF and prices rise for weeks, months or years, you are guaranteed
to lose money.
Related Articles:
Buying on Margin
Exchange-Traded
Funds
Selling Short
Posted March 5, 2007.
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