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Inverse ETFs to Bet on Market Sell-off

Sanghamitra Saha

Geopolitical tensions took center stage at the start of the New Year.  A U.S. drone strike near Baghdad international airport killed Iran’s top commander General Qassim Soleimani, fueling tensions between Iran and the United States. The U.S. move followed a New Year Eve attack by Iran-backed militias on the U.S. Embassy in Baghdad (read: Iraq Attack: Sector ETF Winners and Losers).

Investors should note that the United States’ sanctions against Iran were put into place in August 2018. The sanctions were on cars, metals and minerals as well as U.S. and European aircraft. The second part of the sanctions that bans import of Iranian energy was enacted in November 2018.

The result of the U.S. air strike and the killing of Iranian commander was Iraq’s demand for an expulsion of all foreign troops and Iran’s pulling back from the 2015 nuclear deal. Strategists expect the U.S.-Iran tensions to flare up in the medium term.

Germany called for “crisis meeting of EU foreign ministers” over Middle-East tension. Volatility in the stock market rose with iPath Series B S&P 500 VIX Short-Term Futures ETN VXX gaining about 5.3% on Jan 3.

Global equities fell with the S&P 500-based ETF SPDR S&P 500 ETF Trust SPY and SPDR Dow Jones Industrial Average ETF Trust DIA losing about 0.8% and Invesco QQQ Trust QQQ shedding around 0.9%, respectively. All-world ETF iShares MSCI ACWI ETF ACWI was off 0.9% on Jan 3. Safe-haven trade intensified as the yield on the 10-year benchmark U.S. Treasury fell to 1.80% on Jan 3 from 1.88% recorded the earlier day.

How to Profit

Given the upheaval, investors could easily tap the opportunity by going short on global equities, at least for the near term. Below we highlight a few of them (read: Guide to the 10 Most-Popular Leveraged Inverse ETFs).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF SH (up 0.8% on Jan 3) and Direxion Daily S&P 500 Bear 1X Shares SPDN (up 0.7% on Jan 3).

Dow Jones

Investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 DOG (up 0.8% on Jan 3), ProShares UltraShort Dow30 DXD (up 1.7% on Jan 3) and ProShares UltraPro Short Dow30 SDOW (up 2.4% on Jan 3).

Nasdaq

ProShares Short QQQ PSQ (up 0.8% on Jan 3), ProShares UltraShort QQQ QID (up 1.8% on Jan 3) and ProShares UltraPro Short QQQ SQQQ (up 2.7% on Jan 3) are good to play against the Nasdaq.

Small-Cap

One can short small-cap U.S. equities with ProShares Short Russell2000 RWM (up 0.4% on Jan 3).

EAFE

ProShares Short MSCI EAFE EFZ (up 0.3% on Jan 3) could be a good way to short stocks from the EAFE region and avoid the spillover effect of the geopolitical tension (read: Country ETFs to Top/Flop on US Air Raid at Baghdad).

Emerging Markets

Short MSCI Emerging Markets ProShares EUM added more than 1.7% on Jan 3. The fund tracks the inverse (opposite) of the daily performance of the MSCI Emerging Markets Index. The index covers equites from 21 emerging market country indexes.

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SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
ProShares Short MSCI EAFE (EFZ): ETF Research Reports
 
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): ETF Research Reports
 
Proshares Short Dow30 (DOG): ETF Research Reports
 
ProShares UltraPro Short Dow30 (SDOW): ETF Research Reports
 
Proshares Short MSCI Emerging Markets (EUM): ETF Research Reports
 
ProShares Short S&P500 (SH): ETF Research Reports
 
iShares MSCI ACWI ETF (ACWI): ETF Research Reports
 
Direxion Daily S&P 500 Bear 1X Shares (SPDN): ETF Research Reports
 
ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports
 
Proshares Short QQQ (PSQ): ETF Research Reports
 
Invesco QQQ (QQQ): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
ProShares UltraShort QQQ (QID): ETF Research Reports
 
Proshares Short Russell2000 (RWM): ETF Research Reports
 
Dominion Energy Inc. (D) : Free Stock Analysis Report
 
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