Taking the Measure of the Double-Short ETF

The big benefit of this approach is that if this type of defensive action is taken at exactly the wrong time, there is still plenty of stock exposure in the portfolio. As the market goes up, the value of the double-short position will get smaller, creating less of a drag and allowing more and more of the portfolio to participate in the rally you did not see coming. Really, here, I am talking about the consequences of being wrong. Compare being wrong with this strategy involving the double-short ETF to what happens when you think the market is going to go down, you raise too much cash, it doesn't and you wind up having no idea when to get back in.

I am a big believer in having some sort of strategy that triggers defensive action. Taking the view from 30,000 feet, the point of taking defensive action is to try to miss the full brunt of a large decline. A double-short ETF or an open-end fund makes it easy and cheap for do-it-yourself investors to have a chance of sidestepping a portion of something nasty -- not a guarantee, but a chance.

Generally, I much prefer the trading flexibility of an ETF over an open-end fund. It's easy to envision a scenario where having to wait until 4 p.m. EDT to exit a double-short fund could be a huge disadvantage. For anyone interested in any type of double-short product, the $10 or $20 commission for the ability to trade during the day is well worth it.

One last point: There are flaws and quirks to the double-short ETF. All investment products have plusses and minuses, and the ProShares Ultra Short S&P 500 Fund is no different. For more about the flaws and quirks, read Barry Ritholtz's thoughts on the topic. He sizes them up very well. But make a decision about whether this product is for you by weighing its pros and cons and deciding for yourself.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider ProShares Ultra S&P 500 Fund and the ProShares Ultra Short S&P 500 Fund to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.