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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
by fsk 11y 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 11y agoI 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 11y agoAlso 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 11y agoBut 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.)