To hedge against the market falling, I have small positions of Ultrashort Real Estate Proshares (SRS), Ultrashort Financial Proshares (SKF) and Ultrashort Oil & Gas Proshares (DUG). These are inverse market index ETFs, meaning they rise when the market falls and vice versa. Last week, I added 20 more shares of Ultrashort Real Estate Proshares (SRS) to our trading account.
| Inverse ETF [purchase date] | Shares | Purchase Price | Price on 12/19/08 |
| Ultrashort Oil & Gas Proshares (DUG). [11/21/08] | 100 | $38.21 | $32.68 |
| Ultrashort Financial Proshares (SKF) [12/11/08] | 20 | $118.99 | $110.40 |
| Ultrashort Real Estate Proshares (SRS) [12/11/08] | 20 | $81.64 | $58.76 |
| Ultrashort Real Estate Proshares (SRS) [12/17/08] | 20 | $62.62 | $58.76 |
At this point, it appears the market will be flat to slightly positive in the short term. Personally, I wouldn't mind a year end rally, even if it means losses for these inverse ETFs. However, if the market falls instead, I will have some protection through these ultrashort ETFs.
Disclosure: At the time of publication, I own shares of the Ultrashort Real Estate Proshares (SRS) , Ultrashort Financial Proshares (SKF), and Ultrashort Oil & Gas Proshares (DUG).
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This is not financial or investment advice. Please consult a professional advisor.
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2 comments:
Oil has dropped a lot. Do you expect a further decline? Are you going to keep yout short in play?
@ Mark,
I think that oil may go lower in the next year, before rebounding. However, DUG won't necessarily rise since it is based on an index of companies in the oil & gas industry.
At this point, I plan to keep DUG and sell significantly out of the money covered calls since the option premiums are very high. If DUG doesn't rise,at least, I will make some money from the option premiums.
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