New Short Exposure to the Market: ProShares
July 13th, 2006 by Grant in: Investing, Stock ThoughtsDoes today’s market got you feeling bearish? 
The current volatility in the stock market has brought a lot of money to the sidelines to take a seat on the bench while waiting for some market stability.
The general consensus among novice investors is that if you’re not long in the market, your money can be better utilized in investments like bonds, CD’s, or just your common savings account.
While this approach is fairly conservative, investors should understand that there are two sides to the market, the long side, and the often misunderstood short side.
Traditionally, when you buy a stock you want the stock price to go up. However, short selling provides a “hedge” to your portfolio in that you pick a stock in anticipation that it will go down. Effectively you borrow shares from your broker, and then buy them back (cover) after the price has gone down, making you money when the price falls.
If all this sounds complicated, there’s a new avenue that will place you “long” in a short market. ProShares announced today they are offering up four new ETF-based funds that leverage you against the market.
You buy these funds just like you would any other stock, but the performance of the fund is based on the market going down. The performance of their UltraShort funds is based on twice the inverse of the indexes which they represent.
For instance, the UltraShort S&P 500 ProShares (SDS: info) doubles the inverse of the S&P 500. Consequently, for every point the S&P goes down, SDS goes up two points. On the other hand, if the S&P 500 goes up, SDS goes down by a multiple of 2.
This is a great opportunity to hedge the indexes without the complications of establishing a margin account or borrowing shares from your broker.
Other new UltraShort funds from ProShares:
UltraShort QQQ ProShares (QID: info)
Double the inverse of the Nasdaq-100UltraShort Dow30 ProShares (DXD: info)
Double the inverse of the Dow Jones IndustrialUltraShort Midcap 400 ProShares (MZZ: info)
Double the inverse of the S&P Midcap 400
Remember, be sure to research these investment ideas throroghly before placing your orders.
Disclosure: I own none of the funds mentioned in this post.
Additional Information
ProShares Home Page
MarketWatch.com Article
MarketWatch.com Video with William Seale from ProFunds
Leave comments
Subscribe to Comments
Loading ...
July 15th, 2006 at 2:45 pm
That’s a great idea. What an easy way to make money in a crappy market.
March 26th, 2007 at 7:55 pm
[…] for instance the ProShares UltraShort Midcap, QQQ and Dow30 funds, in which the focus is to short the respective market, however to participate, you go long the […]