Shorting the Market with ProShares ETFs

ProShares offers eight exchange-traded funds (ETFs) that enable you to make money when the market goes down. You may use these ETFs to bet against the market for a short-term trade or you may use them as a longer-term insurance policy (hedge) against the risk of a market decline.

Four Ultrashort ProShares ETFs offer gains and losses that are twice the inverse of the corresponding index move. So if the index goes down 10 percent, the ETF moves up 20 percent. The less aggressive Short ProShares move one-to-one with the market index but in the opposite direction.

The Ultrashort ProShares ETFs include:

UltraShort QQQ ProShares (QID), Double the inverse of the NASDAQ-100
UltraShort S&P500 ProShares (SDS), Double the inverse of the S&P 500
UltraShort Dow30 ProShares (DXD), Double the inverse of the Dow Jones Industrial Average
UltraShort MidCap400 ProShares (MZZ), Double the inverse of the S&P MidCap 400

The Short ProShares ETFs include:

Short QQQ ProShares (PSQ), Inverse of the NASDAQ-100
Short S&P500 ProShares (SH), Inverse of the S&P 500
Short Dow30 ProShares (DOG), Inverse of the Dow Jones Industrial Average
Short MidCap400 ProShares (MYY), Inverse of the S&P MidCap 400

Of course if the market moves up, the value of the short ETF will go down so you can lose money. But, unlike selling short, your losses are limited to your original investment.

Posted August 15, 2006.