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The short answer( which is almost always the short answer to generic investment strategy advice) is it depends. I wouldn't select an actively managed fund like

The short answer( which is almost always the short answer to generic investment strategy advice) is it depends. I wouldn't select an actively managed fund like inverse ETFs based on their strategy. You aren't just investing in the strategy but also in the fund managers ability to execute on this strategy. Because you have a specific time horizon and you mentioned hedging the options strategies seems like a decent idea. You mentioned buying puts, but you could also sell call options, much like shorting stocks. This will give you leverage. You can do this by using derivatives of index etfs or hand select the companies you think are going down. You mention the fees at low cost brokerages being too high. They are typically around $15 per trade. To be honest if you aren't investing ~5000 even the greatest return probably woulnd't be worth the time and research necessary for completing the transaction. Also ignore the people saying its a sure fire way to lose money. Being speculative is an important function of the economy. No risk no reward!

svtrent 12y ago
The fees for options at TD Ameritrade and Schwab are $10 + $0.75 per options contract. Forget the $10 base fee, if I understand correctly it's the per contract fee that's exorbitant. Take the QQQ ETF: put options that are a little out of the money cost $2-$3 each, so the 75 cent fee is around a third of the investment amount, and if you incur another 75 cent fee per contract if/when you sell then it's even worse
- jklein11 12y ago
  That's interesting they must have changed the fee structure from the last time I looked. That being said a contract usually refers to 100 options on the underlying. So a contract for the put options you talked about would be $200 +.75 + $10. I haven't taken a look at their fee structure so I'm not sure if that is how it works but it would make more sense.
fsk 12y ago
FYI: Inverse ETFs are horrible. They wind up buying high and selling low, due to the fact they continually rebalance. Someone did a study of inverse ETFs, and they performed poorly even when their target index tanked. Even if you buy 1-2 year NASDAQ ETF (QQQQ) puts, there's no guarantee that the bubble won't pop in 1-2 years. You may wind up with a 100% loss. The overall trend is for the stock market to go up, due to inflation. Short selling and put buying is betting against that trend. There is no guarantee that the market will crash (even if it's overvalued right now). There might just be a couple years of 0%-5% returns, in which case put buying and short selling won't work. Remember that, if the market does tank 10% or more, the Federal Reserve will probably increase their "quantitative easing" to try and re-inflate it.
- jklein11 12y ago
  I agree with your opinion of inverse ETFS in general. As to the fact that there is no guarantee that puts or shorting will pay off this is stating the obvious. Its called speculation for a reason. No pain no gain.
- jklein11 12y ago
  Also to alleviate the possibility of the stock market at large expanding and wiping out any gains form the QQQQ not doing as well you can sell puts on a broader index(like s&p) and then sell calls for the what you think will do poorly. For more info google stock picking options strategies.
  - fsk 12y ago
    But with an unhedged option spread like that, his losses are unlimited. I.e., QQQQ continues to skyrocket while SPY tanks (or is flat). Naked put selling is very dangerous. (Well, his risk is limited to the strike, but that's a small consolation when the premium for selling the put is 5%-10% of that.)

svtrent 12y ago

The fees for options at TD Ameritrade and Schwab are $10 + $0.75 per options contract. Forget the $10 base fee, if I understand correctly it's the per contract fee that's exorbitant. Take the QQQ ETF: put options that are a little out of the money cost $2-$3 each, so the 75 cent fee is around a third of the investment amount, and if you incur another 75 cent fee per contract if/when you sell then it's even worse

jklein11 12y ago
That's interesting they must have changed the fee structure from the last time I looked. That being said a contract usually refers to 100 options on the underlying. So a contract for the put options you talked about would be $200 +.75 + $10. I haven't taken a look at their fee structure so I'm not sure if that is how it works but it would make more sense.

fsk 12y ago

FYI: Inverse ETFs are horrible. They wind up buying high and selling low, due to the fact they continually rebalance. Someone did a study of inverse ETFs, and they performed poorly even when their target index tanked. Even if you buy 1-2 year NASDAQ ETF (QQQQ) puts, there's no guarantee that the bubble won't pop in 1-2 years. You may wind up with a 100% loss. The overall trend is for the stock market to go up, due to inflation. Short selling and put buying is betting against that trend. There is no guarantee that the market will crash (even if it's overvalued right now). There might just be a couple years of 0%-5% returns, in which case put buying and short selling won't work. Remember that, if the market does tank 10% or more, the Federal Reserve will probably increase their "quantitative easing" to try and re-inflate it.

jklein11 12y ago
I agree with your opinion of inverse ETFS in general. As to the fact that there is no guarantee that puts or shorting will pay off this is stating the obvious. Its called speculation for a reason. No pain no gain.
jklein11 12y ago
Also to alleviate the possibility of the stock market at large expanding and wiping out any gains form the QQQQ not doing as well you can sell puts on a broader index(like s&p) and then sell calls for the what you think will do poorly. For more info google stock picking options strategies.
- fsk 12y ago
  But with an unhedged option spread like that, his losses are unlimited. I.e., QQQQ continues to skyrocket while SPY tanks (or is flat). Naked put selling is very dangerous. (Well, his risk is limited to the strike, but that's a small consolation when the premium for selling the put is 5%-10% of that.)