Since the stock market trends higher—or stays level—far more often than it declines, it is difficult to make consistent money by shorting stocks or 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs). You can sell short S&P 500 ETFs like the SPDR S&P 500 ETF (SPY).

But this strategy can be risky, since losses on short positions in stocks, ETFs, or stock index futures are potentially unlimited, and may be subject to 澳洲幸运5官方开奖结果体彩网:margin calls; however, there are times when a🦄 bearish bet against a benchmark stock index, such as the S&P 500, is appropriate. Here, we go over some effective ways of gaining shꦦort exposure to the index without having to short stocks.

𒀰1. Inverse S♌&P 500 Exchange-Traded Funds (ETFs)

By utilizing the SPDR S&P 500 ETF (SPY), investors have a straightforward way to bet on a decline in the S&P 500 Index. An investor engages in a short sale by first borrowing the security from the broker and immediately selling the shares at the current market price. Then, the investor buys the shares back at a lower price and closes the trade out with a profit. The S&P 500 ETF is huge, liquid, and closely tracks its S&P 500 benchmark.

Hedge funds, mutual funds, and retail investors all engage in 澳洲幸运5官方开奖结果体彩网:shorting the ETF, either 澳洲幸运5官方开奖结果体彩网:for hedging or to make a direct bet🐼 on a possible decline in the S&P 500 Index.

But if you don't want to sell the ETF short, you can instead go long (i.e. buy) an 澳洲幸运5官方开奖结果体彩网:inverse ETF that goes up when the underlying index goes down. For example, the Direxion Daily S&P 500 Bear ETF (SPDN) is designed to provide 1x inverse exposure to one of the most popular indexes among investors.

There are also several leveraged short ETFs with the objective of returning twice or three times the inverse return of the S&P 500; however, it's important to be aware they have much more trouble hitting their benchmark. This slippage or drift occurs based 🐓on the 🔯effects of compounding, sudden excessive volatility, and other factors. The longer these ETFs are held, the larger the discrepancy is from their target.

2. Inverse S&P 500 Mutual Funds

Inverse mutual funds, known as 澳洲幸运5官方开奖结果体彩网:bear funds, also seek investment results that match the inverse performance of the S&P 500 Index (after fees and expenses). The Rydex and ProFunds mutual fund families have a long and reputable history of providing returns that closely match their benchmark index, but they only purport to hit their benchmark on a daily basis due to slippage.

Similar to the inverse leveraged ETFs, leveraged mutual funds experience a bigger drift from their benchmark target. This is particularly true when a fund leverages up to three times the inverse return of the S&P 500. The Direxion fund family is one of the few employing this type of leverage.

Inverse mutual funds engage in short sales of securities included in the underlying index, and they employ derivative instruments including futures and options. A big advantage of the inverse m🍨utual fund—compared to directly shorting SPY—is lower upfront fees. Many of these funds are no-load; investors can avoid brokerage fees by buying directly from the fund and avoiding mutual fund distributors.

3. Put Options

Another consideration for making a bearish bet on the S&P 500 is buying a put option on the S&P 500 ETF. An investor could also buy puts directly on the S&P 500 Index, but there are disadvantages to this, including liquidity. Staying with the ETF is a better bet, based on the depth of its strike prices and maturities.

In contrast to shorting, a put option gives the right to sell 100 shares of a security at a specified price on or before a specified date. That specified price is known as the strike price, and the specified date is known as the expiration date. The put buyer expects the S&P 500 ETF to go down in price, and the put gives the investor the right to "put," or sell, the security to someone else.

In practice, most options are not exercised before expiration and can be closed out at a profit (or loss) at any time prior to that date. Options are꧙ wonderful instruments in many ways. For example, there is a fixed and limited potential loss.

Moreover, an option's leverage reduces the amount of capital tied up in a bearish position. One rule of thumb is, if the amount of premium paid for an option loses half its value, it should be sold because, in all likelihood, it will expire as worthless.

4. Index Futures

A futures contract is an agreement to buy or sell a financial instrument, such as the S&P 500 Index, at a designated future date and at a designated price. As with futures in agriculture, metals, oil, and other commodities, an investor is required to only put up a fraction of the S&P 500 contract value. The 澳洲幸运5官方开奖结果体彩网:Chicago Mercantile Exchange (CME) calls this "margin," but it is unlike the margin in stock trading.

There is huge leverage in an S&P 500 futures contract; a short position in a market that suddenly starts to ascend can quickly lead to large losses and a request from the exchange to provide more capital to keep the position open. It is a mistake to add money to a losin𓆉g futures position, and investors should have a stop-loss on every trade.

There are two sizes of S&P 500 futures contracts. The E-mini, which is valued at 50x the level of the S&P 500 Index. Then there's the Micro E-mini, which is valued at 5x the S&P 500 Index. To limit risk, investors can also buy put options on the futures contract rather than shorting it. Note that the CME ended the offering of standard-sized S&P 500 contracts in 2021.

The Bottom Line

When bear markets ar🔥rive, shorting individual stocks can be risky, and the best stocks to short are hard to identify. Just as owning the S&P 500 Index in a bull market provides less volatility and diversification, shorting th☂e index during a bear market can provide similar benefits to a bearish investor.