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Inverse ETFs Offer Options for Investors Fearing a Crash

Betting against this rally? Looking for a way to profit from the fall or a way to hedge your bets against a crash?

Well, there is a host of short-term investments for that known as inverse ETFs.

Inverse ETFs, also known as short funds, are pegged to a major index and are designed to give you the opposite performance. In other words, inverse ETFs go up when the benchmark goes down and vice versa. These short funds can be bad investments if used unwisely, but many active traders are reaching for inverse ETF options either as a hedge or a short-term strategic play.

Some warnings, however: There also are leveraged products for the riskier folks out there that attempt to double or even triple the movement of the market. It’s one thing to simply trade an inverse ETF, but remember the added volatility can hurt you double or triple if you bet incorrectly. It’s also worth noting that the expense of these short funds can really wear at you long-term and that the leverage is commonly done on a daily basis, not over time, so buying and holding is not advised.

Also make sure you double- and triple-check to avoid a fat-finger mistake on any inverse ETFs. The names are eerily similar on many products, as are their strategies.

That said, here are some options for those of you looking for the other side of the trade in the event of a downward-trending market:

1x Short Funds

  • Direxion Daily Total Market Bear 1x Shares (NYSE:TOTS): -100% of the MSCI US Broad Market Index.
  • ProShares Short Dow30 ETF (NYSE:DOG): -100% of the Dow Jones Industrial Average.
  • ProShares Short MidCap 400 ETF (NYSE:MYY): -100% of the S&P MidCap 400 Index.
  • ProShares Short QQQ ETF (NYSE:PSQ): -100% of the Nasdaq 100 Index.
  • ProShares Short Russell 2000 ETF (NYSE:RWM): -100% of the Russell 2000 small-cap stock index.
  • ProShares Short S&P 500 ETF (NYSE:SH): -100% of the S&P 500.
  • ProShares Short Small Cap 600 (NYSE:SBB): -100% of the S&P Small Cap 600.

2x Short Funds

  • ProShares UltraShort Dow 30 ETF (NYSE:DXD): -200% of the Dow Jones.
  • ProShares UltraShort Mid Cap 400 ETF (NYSE:MZZ): -200% of the S&P Mid Cap 400.
  • ProShares UltraShort QQQ ETF (NYSE:QID): -200% of the Nasdaq 100.
  • ProShares UltraShort Russell Mid Cap Value ETF (NYSE:SJL): -200% of the Russell Mid Cap Value Index.
  • ProShares UltraShort Russell Mid Cap Growth ETF (NYSE:SDK): -200% of the Russell Mid Cap Growth Index.
  • ProShares UltraShort Russell1000 Value ETF (NYSE:SJF): -200% of the Russell 1000 Value Index.
  • ProShares UltraShort Russell1000 Growth ETF (NYSE:SFK): -200% of the Russell 1000 Growth Index.
  • ProShares UltraShort Russell 2000 ETF (NYSE:TWM): -200% of the Russell 2000 Index.
  • ProShares UltraShort Russell 2000 Growth ETF (NYSE:SKK): -200% of the Russell 2000 Growth Index.
  • ProShares UltraShort Russell 2000 Value ETF (NYSE:SJH): -200% of the        Russell 2000 Value Index.
  • ProShares UltraShort Russell 3000 ETF (NYSE:TWQ): -200% of the Russell 3000 Index.
  • ProShares UltraShort S&P 500 ETF (NYSE:SDS): -200% of the S&P 500.
  • ProShares UltraShort Small Cap 600 ETF (NYSE:SDD): -200% of the S&P Small Cap 600.

3x Short Funds

  • Direxion Daily S&P 500 Bear 3x Shares (NYSE:SPXS): -300% of the S&P 500 Index.
  • Direxion Daily Mid Cap Bear 3x Shares (NYSE:MIDZ): -300% of the S&P Mid-Cap 400 Index.
  • Direxion Daily Small Cap Bear 3x Shares (NYSE:TZA): -300% of the Russell 2000.
  • ProShares UltraPro Short QQQ ETF (NASDAQ:SQQQ): -300% of the Nasdaq 100.
  • ProShares UltraPro Short Dow 30 ETF (NYSE:SDOW): -300% of the DJIA.
  • ProShares UltraPro Short S&P 500 ETF (NYSE:SPXU): -300% of the S&P 500.
  • ProShares UltraPro Short Mid Cap 400 ETF (NYSE:SMDD): -300% of the S&P Mid Cap 400.
  • ProShares UltraPro Short Russell 2000 ETF (NYSE:SRTY): -300% of the Russell 2000.

There are other inverse ETFs out there focusing on different asset classes or even sectors. One that was particularly favored by bank bears was the Direxion Daily Financial Bear 3X Shares (NYSE:FAZ), which seeks to return 3x the opposite of the Russelll 1000 Financial Services Index. But the above list is a broad way to play the downside of the market, either as speculation or as a hedge.

ProShares has a host of short funds out there (here’s its full list of products), as does Direxion (here’s Direxion’s, too).

But to reiterate, remember that betting the wrong way can hurt you — and that betting the wrong way with a 3x fund hurts three times as bad.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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