Following up on the 1,175 point drop in the DOW yesterday we are seeing huge buying volume move in on inverse ETF's. You may be wanting to get in on the hype but there are a few things you should know first. This is not going to be the end all be all for this asset class but if you're new and aren't sure where to start, this information will help get you going in the right direction.
If you haven't already you should familiarize yourself with the $SPY. Inverse ETF's are going to be moving in direct contrast with the index so it is very important that you understand this relationship. One thing to avoid is leveraged, inverse ETF's. Yes it is true that they have larger profit potential but they also expose you to more risk. Leveraged money is borrowed money so if your trade goes south you could end up owing your broker. Not a good way to start your trading journey. Now that we have that out of the way let's get to the fun stuff.
$TVIX
"This levered electronically traded note (ETN) is tied to the S&P 500 VIX futures, which measure the implied volatility of S&P 500 index options." This inverse ETF has had great moves the last two days in response to the futures falling sharply. If you were trading it this morning at the market open you could have caught it at about $8 and traded out for $10.40 a share at 10am EST. If you held 20-30 minutes longer you could have sold your holdings for around $15 a share. That's another $7 a share in less than an hour. There was even an opportunity to swing overnight from about $12 and sell around $15 before 9AM. As you can see there are multiple opportunities to make money on this play alone.
$SH
This ETF is used to take advantage of downward trending of the S&P 500 companies. Essentially this ETF is a way of shorting the S&P index without actually having to go through the trouble of setting up a margin account to short with. The other obvious advantage is that you don't actually have to short anything which is great for limiting our risk.
$CHAD
Here is a great foreign option. Yes, you can even take advantage of foreign markets going down. $CHAD specifically is used to short the Chinese market; more specifically the CSI 300. This would have been a good option to buy into when the Chinese government devalued their national currency. It's almost guaranteed to make the value of the Chinese companies go down and with a proper trading plan it would have been almost silly not to pick up a few shares.
$SAGG
$SAGG is in direct inverse to the Bloomberg Barclay's US Aggregate Bond Index. This means simply when you see the bond index going down you might want to look into a play here. This seems too simple but these were created to be in direct opposition to market direction. Bonds are directly affected by a rise in inflation or interest rates. When the buying power of the dollar goes down returns on bonds also go down but the $SAGG will be rising!!
$MELT
This ETF is in direct inverse to the direction of gold indexes like $GDX. Many people look to precious metals as a hedge against rising interest rates, so when interest rates lower you may see the price of gold drop. So more simply put, high interest rates are bullish for the price of gold while low interest rates are a more bullish indicator for stocks.
The information provided is only my opinion and should not be taken as investment advice. Please, always do your own research and make the best decision for yourself financially. I hope some of the information provided today will help you succeed in this crazy market!!!