Tuesday, August 25, 2015

Protect Yourself From Crashing Stock Markets with the SQQQ ETF

Last Friday morning at 8am, I wrote an article called 5 Ways to Protect Yourself in a Bear Market. Since then, the stock market has, well to put it bluntly, crashed. Using the Dow Jones Industrial Average (since that is the index that the media likes to use), by the end of the day on Friday, the index was down over 530 points. Then yesterday, Monday, the stock market was down 588 points (and had actually dropped around 1100 points intra-day). Today, the market tanked again, falling over 200 points. Hopefully, you did something to protect your portfolio.

One of the bear market protection tools is an ETF, an exchange traded fund, called the ProShares Trust UltraPro Short QQQ ETF (SQQQ). The goal of this fund is to replicate three times the inverse of the NASDAQ 100 index using various types of derivatives. What that means is that if the stock market, in terms of the NASDAQ 100 drops by 1%, this ETF should rise by 3%.

This index includes such stocks at Amgen (AMGN), Apple (AAPL), Baidu (BIDU), Cisco (CSCO), eBay (EBAY), Facebook (FB), Google (GOOG), Intel (INTC), Microsoft (MSFT), Netflix (NFLX), Starbucks (SBUX), Tesla (TSLA), Whole Foods (WFM), and Yahoo (YHOO).

Since the close last Thursday, SQQQ has risen from 24.33 to 31.10, an increase of 27%. The nice thing about using an ETF such as this is that you don't have to short stocks, you don't have to use options, and you don't have to use margin. Not a bad over three business days.

However, you should be aware that if the market goes against you, in this case if the market rises, your loss on the ETF can be substantial. If the market goes up 1%, you would lose 3% on the ETF.

The triple bearish ETFs are just another tool at your disposal to protect your portfolio and make money when stocks drop. They should only be used on a short term basis. For a free list of other triple bearish ETFs, go to WallStreetNewsNetwork.com.

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