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It's easy to make money when stock prices rise.
Just invest in one of the 5,000 stocks listed on major exchanges or one of the hundreds of exchange-traded funds (ETFs) that are already available – with more being added almost every day.
But if you want to make money when the stock market crashes, it's just as easy.
Maybe even easier.
Just buy shares in one or all of the four "investments" I'm going to tell you about today…
More Pain Means More Gain
Shorting strategies will allow you to cash in when stocks, bonds, or other assets fall in price.
Indeed, there are lots of ways to make money when things go down. But just knowing about the three most popular strategies to play price or market declines is enough for you to cash in on the next stock that plunges on disappointing earnings – or on the next bear market in blue chips.
Those three key "short-side strategies" are:
- Selling short, more commonly known as shorting
- Buying inverse ETFs
- Buying put options
Today we're going to look at inverse ETFs.
Grabbing Profits During a Stock Market Crash
When I talk to investors, one of my main messages is that "there's always a place to make money" – with any kind of asset… and in any kind of market.
And short-selling is a core piece of that belief.
In fact, investors who aren't at least considering short-side trades are missing major profit opportunities – in essence, leaving lots of money on the table.
ETFs are packaged products that trade all day like stocks.
You can buy them… sell them… and short them.
And there are hundreds to choose from.
Inverse ETFs are a category of exchange-traded funds that do the opposite of what an underlying portfolio or index does.
When markets fall, inverse ETFs rise in value. And the steeper the market drop, the bigger your profit.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.
How about a way to short the yen without using leveraged etfs?
TIMING IS CRITICAL
My experience with inverse ETF's like I-Shares (SH) began with a small position in 2011, the last time we had a large "global growth scare" and resulting stock market slow down. ( Not leveraged ETF's). Clearly, we have some rotation between central banks and their respective QE's. So, we see rotation in which stock markets exhibit the fastest growth to go with it.
The problem I see with SH and other inverse Index ETF's is they are only effective in the short term. If you have a long period of sideways movement but still a gradual increase in valuations, as we have had since 2010, then Inverse ETF's lose value and don't work as effective hedges. Conclusion: You have to be in them at just the right time ( before a sustained market correction) for them to produce the desired results ( gains instead of losses). We have not had more than a 10% correction in the past five years, and they were like a summer thunderstorm- gone in a few hours ( days ).
What happens if you buy a reverse ETF like TZA which is a a 3X financial market short with the following market senario?
The current price is about $11 but in the market collapse of 2009 it went to $29000 per share. Is this then an illiquid investment i.e. who is going to pay this price?
There doesn't seem to be any 'cheap' options out there that allow you to get into a big 'reasonable' payout for a near term market collapse.
Are any of these available with Roth IRA money?
Yes. You can have a Roth IRA account with any brokerage. You can trade/buy/sell stocks and options (as long as your brokerage allows you to trade options).
Several days have passed since I wasted an hour composing my comment with no posting showing up…frustrating…maybe the moderator didn't like my viewpoint?!
Nevertheless, I need some answers – so – I'll give it another try!
About the time pundits began crying "This bull is growing long-in-the-tooth!", Shah, you recommended buying 'portfolio insurance' via the VXX. Respecting your history as a market maker and contributor to the formation of the VIX, I literally 'bought in' to your argument beginning in July of '13 and averaging into a position comprising about 3% of my total portfolio (5% of my equity investments) and have held that position for the nearly 2 years since disregarding the losses since – after all – insurance has its costs!
However – in a recent series of blog discussions – I encountered the opinion that 'value leakage' (due to roll costs, etc) structured into VXX will inevitably result in a 46-50% annual loss. This opinion is in line with the nearly 70% total loss I have endured on my VXX position and raises these questions:
1) Is the going 'long' on VXX really a valid 'correction/crash insurance' strategy?
2) If so, can it be expected to 'work' over an indefinite holding period or only short-term?
3) If only short-term, under what conditions and for how long?
I look forward to your expert insight, Shah, or input from someone at least!
Thanks
Buy pork belly futures. Now.
If Blind guy is still out there??
I would be very interested in finding out if u were able to get your answers?? I too have been at this table a little early for the party. Lol it seems to me that the timing aspect of this must be factors in as well. Hopefully, now that All the Markets on a Global scale have all entered Correction to Bear ratings the upward, protection trend continues for us wit the VXX. Playing VXX & XIV intermittently has been profitable in my experience. Hedge the hedge so to speak. Anyone else's opinions would be much appreciated. Thanks A