How you can profit when the markets go down..

Posted November 22, 2011 at 3:15 am

by Brad Wajnman
WV’s Investment Director

Statistics show that at least 80% of retail investors have no strategy for how to profit from the U.S. stock market when it’s dropping.

The SEC has made it virtually impossible for individual investors to short sell any bank or financial company shares of stock, and European regulators have recently followed suit by banning short selling on government bonds and large financial institutions in an effort to avoid a crash in the Euro.

But the good news is, there’s still a way for you to cash in big-time when the stock market and other major sectors drop.

Just think, when all the stubborn retail stock investors are banging their heads against the wall in complete denial and they’re fighting for profit, you’ll be able to smile and ride it as it goes down!

Imagine the feeling of knowing that, no matter which way things move in the markets, you’re protected against seeing your entire retirement savings get wiped out.

So how do we do that?…

Simple… buy Double or Triple Inverse ETFs. It’s one of the most popular ways contrarian insiders hedge their bets and make money as the market goes south.

If you’re not familiar with this kind of trading instrument, I’ll let Barry explain:

“Unlike mutual funds, they trade all day long on the exchanges; sort of how stocks do. But, unlike stocks, you can put frequent bets (trades) on specific or broad sectors, indexes, and industries, instead of just on ONE company.

ETFs offer an enormous range of specific investing possibilities that carry diversified risk. And, probably the overlooked beauty of them is that they’re a PERFECT allocation tool.”

An ‘Inverse ETF’ works the opposite way of a typical ‘Non-Inverse ETF.’

For instance, with the popular ETF, SPXU, the fund’s share price will rise as the S&P 500 goes down. But here’s the kicker… it won’t just move by a factor of one, it’ll move by a factor of three! So for every $1 the S&P 500 index drops, the price of SPXU will go up $3!

If you purchase this ETF, you’re essentially betting AGAINST the rise of the S&P 500. SPXU will be a serious mover as the market plunges lower.

Here’s a list of a few top-performing ETFs that Barry and I have had positions in (positions that we watch on a daily basis, mind you):

TZA, DRV, EDZ, VXX & FAZ

NOTE: we told our paid-up members, via via the May 2010 Mailbag page, the DETAILED how and why we trade the above ETFs.

All of these non-diversified ETFs are highly leveraged to rise when there’s a drop in the markets. When we traded a few, back in May 2010 for example, they all had huge single-day gains in the range of 14 – 15.5%!

To get more details on the ETFs above, you can visit the Yahoo! Finance links connected with each one and look under their profile area. You’ll find what’s called the “Fund Summary” which will explain exactly what each fund invests in.

What we love about Inverse ETFs like these is that they allow the “little guy” the ability to start with a very small amount of cash in an online brokerage account like eTrade.com, etc., and potentially end up making 30, 40, 50, or even 100 times your money without ever risking more than the initial investment capital you started with (you also don’t have to worry about margin calls).

It’s one of the simplest ways for ordinary investors to use Wall Street’s own insider tactics against them — except be able to do it legally and ethically.

Some investors are using them for fun and profit (swing trading), while others prefer to use them as a form of “portfolio insurance” to prevent them from losing their entire investment portfolio value.

Opportunities like these don’t come around very often, and of course there’s never any guarantee of a sure thing… but the upside profit potential with ETFs like these at this point in the game is just huge, which is why we see allocating a small percentage of one’s speculative capital in them to be a wise choice.

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Tags: Inverse ETFs