This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How to Get Around Short-Sale Ban

When the SEC temporarily banned short selling on Sept. 18, investors lost an important tool for coping with the bear market. But the ban did not affect another source of recent profits: inverse mutual funds and exchange-traded funds, which rise when the market falls.

Even after the ban ends, investors will have good reason to use the funds instead of shorting stocks directly. "Inverse funds can be very cost-effective ways to hedge," says Michael Sapir, CEO of ProShares Advisors, which manages ETFs.

The funds achieve gains in downturns by trading futures and options. Because they do not sell stocks short, the SEC ban did not apply to the funds. During the first weeks of the ban, trading volume of the funds spiked as investors sought bear-market choices that were still available. Unable to short financial stocks, investors bought ProShares Short Financials (SEF), which advances when there is a decline in the Dow Jones U.S. Financials Index.

ProShares and Rydex Investments are the leading managers of inverse funds, offering a range of choices that enable investors to short an index, such as the Russell 2000, or a sector, like energy. Consider Rydex Inverse S&P 500 (RYURX), a mutual fund that delivers the inverse of the S&P. If the S&P drops 1% on one day, the fund will rise 1%. Because of expenses and the effects of compounding, the funds don't provide an exact inverse of benchmarks over long periods. But the results have been close to what investors expect. During the first eight months of 2008, the Rydex S&P fund returned 12.6%, while the S&P 500 lost 11.4%, according to Morningstar.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,765.21 +87.31 0.52%
S&P 500 1,960.60 +9.78 0.50%
NASDAQ 4,470.0040 +17.2120 0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs