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I am now looking at some of the short and ultra-short ETFs as protection against a bear market. But I cannot get a handle on how these make money. Do they short the individual stocks in the index they track? And exactly how do the ultra-short ETFs try to double the return? -- E.W. The short and "ultra" (or "double") short ETFs (
About Shorting StocksInvestors sell stocks short when they believe the market will go lower. Instead of buying low and selling high, the short-seller does the reverse: He sells high, and then, after the market has fallen, buys low. Typically, when an investor shorts an individual stock, he or she needs to set up a
Short ETFsProShares Advisors and Rydex Securities are currently the only companies issuing exchange-traded funds that short the U.S. and foreign stock markets. These ETFs go up in price when the market goes down. Short ETFs, such as the ProShares Short S&P500 ( SH),
Press Your Bets With Leveraged ETFs
New ETF Offers Leverage and Pitfalls." The ProShares Ultra S&P500 aims to capture twice the move of the benchmark index.
Taking the Measure of the Double-Short ETF." A noticeable tracking error won't diminish its popularity as a directional bet, but it has another use.
Hedge Your Portfolio With 'Ultra' Short ETFs." ETFs that move in the opposite direction of stocks can help smooth the market's bumps.
An Easier Way to Short Emerging Markets." ProShares' latest ETFs let you bet on declines in global stocks.