Friday, April 11, 2014

Four Ways to Make Money in a Bear Market

Don't be the fish
If you think we are in for a stock market crash or at least a major correction, you are probably looking for a way to make money from a falling stock market. Here are a few ways.

Short Stocks

1. You can short stocks, however, the potential loss is unlimited.

Buy Put Options

2. You can buy put options. A put is the right to sell a stock at a particular price within a certain period of time. The issue with these is that they can have a fast approaching expiration, and if they aren't in-the-money at the time of expiration, it will result in an entire loss of the investment. Plus, for novice investors, options may be difficult to understand.

Bearish ETFs

3. So what is left? Bearish exchange traded funds, also known as Bearish ETFs. These are investments that have a goal of providing the daily inverse of a stock index. Some of these ETFs have an objective of 100% of the reverse performance. These are extremely volatile investments that are designed for short term trades, not long term investments. They achieve their performance through the use of various financial instruments including futures contracts, options, equity caps, collars, floors, swap agreements, short positions, and reverse repurchase agreements.
Double and Triple Bearish ETFs 

4. Double and triple bearish ETFs can multiply your profits (or losses) which can provide a 200% or 300% opposite return of the market. According to, there are over a dozen commonly traded triple bearish ETFs available for investors.

One popular one is the Direxion Daily S&P 500 Bear 3X Shares ETF (SPXS), which attempts to produce 300% of the inverse of the performance of the S&P 500. In other words, if the S&P 500 drops 2% in one day, the ETF should go up in value by 6%. Of course, if the S&P 500 rises by 2%, the ETF will drop by 6%, a significant loss. So it is worth repeating, these are extremely risky investments.

Investors can be more specific in terms of what sectors will drop, or will drop the most. For example, suppose you think energy stocks will tank. There is the Daily Energy Bear 3X Shares ETF (ERY), which attempts to track 300% of the inverse of the Energy Select Sector Index. Think bank and financial services companies are overpriced and due for a drop? There is the Daily Financial Bear 3X Shares ETF (FAZ).

There is even a triple bearish gold ETF called the Daily Gold Miners Bear 3X Shares ETF (DUST), with an interesting stock symbol. Its objective is to produce 300% of the opposite of the NYSE Arca Gold Miners Index.

For a free list of the most commonly traded triple bearish ETFs which can be downloaded, go to

Disclosure: Author didn't own any of the above at the time the article was written.

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