Are you a perma-bull? Do you experience symptoms like paralysis, shortness of breath or confusion when you consider shorting stocks? The good news is that there is help for traders who want to make profits in a bear market but don’t want to short stocks or buy puts. I am joking a bit with the introduction of this article but it is a well-known phenomenon that most stock investors have a natural aversion to shorting stocks. Shorting can be a little complicated and there are usually additional charges from your broker when you engage in short selling.
[VIDEO] What Bulls Need to Make Money in a Bear Market
The alternative to shorting stocks is a contra-fund or ETF. Like all ETFs these trade like regular stocks but replicate the results that a portfolio of short stocks would provide in a down market. That means that these ETFs will rise in a bad market and fall in a good market. In the chart below you can see one of my favorite versions of these products in the ProShares Ultrashort S&P 500 (SDS) fund, which replicates a leveraged short S&P 500 position.
The fund is leveraged 2:1 which means that if the market drops by 4% the fund will go up by 8% so account for that in your position sizing before taking a trade. Like many ETFs, the ProShares fund also has options available. Wouldn’t it be great to be able to buy calls to satisfy your inner bull but profit when the market drops? In the video, I will walk through a couple examples of how these funds work and why their options may be a great alternative for aggressive traders to find profits and for conservative investors to hedge some of their market exposure.