Omicron and congress’ tug of war is putting downward pressure on the markets. If there is anything we have learned from the last couple years is that the market has a pretty short attention span. We have seen pullbacks from both of these issues repeatedly and then all of the sudden a new headline seems to wipe out the fear and everyone is smiling again.
While the world tries to figure out how to react to the new spike in COVID from the latest variant and congress sorts through actual bills and political posturing, the dropping market can offer some nice potential payouts.
We have talked about ETFs quite a bit. These investment products trade just like a stock but are valued based on a collection of stocks or other factors. They allow you to trade an entire index, for example, just like you would buy a single stock. Another great feature of ETFs is that there are inverse ETFs that move in the opposite direction of the factors the ETF is based on. For instance, a very popular ETF is the SPY which tracks the S&P. Here is a chart of the SPY:
Now compare that to a chart of the inverse ETF that tracks the S&P. Scroll down for a chart of SH:
You can see that when the pandemic hit in the beginning of 2020, SH spiked as the market crashed. This correlation makes inverse ETFs a useful tool when we are seeing signs of a downturn.
In addition, there are leveraged ETF. These products track the index or other factors but the prices moves 2-3x the move of the elements the ETF is based on. These leveraged ETFs, both standard and inverse, can provide opportunities for accelerated gains from market moves.
Here is a quick table of a few Index ETFs along with their inverse and leveraged ETFs:
Most of these ETFs also have an options market which make them even more powerful tools to hedge and exploit these big moves.
If you are looking for the right strategy to apply to this current market that will give you the optimal odds for a winning trade, check out Don Fishback’s Quick Start Guide to Options Success. It is the best step-by-step guide to understanding and selecting the right option strategy.
Keep learning and trade wisely,
Market Wealth Daily