What is an inverse or short ETF?
Introduction
An inverse or short ETF is an ETF that tracks an index, but the ETF tries to go up or down in the opposite direction of the index. This gives the ETF investor a tool to try to make money when the stock market is going down or when individual sectors or industries are going down. For example, SH, the ProShares Short S&P 500 ETF, tracks the S&P 500 Index, but it moves in the opposite direction.
How do inverse ETFs work?
Inverse ETFs typically achieve their inverse exposure using swap agreements. A swap agreement is a private agreement with one of the major international investment banks like UBS, Credit Suisse, Morgan Stanley and Goldman Sachs. Some ETF sponsors actually disclose on their website who the swap agreements are with, while other ETF sponsors do not (those ETF sponsors merely list "S&P 500 index swap" as a holding, without mentioning the investment bank that it is with).
You can visit the home page of each ETF if you would like to read a little more about how they are trying to do it. Almost every inverse ETF's home page has a "current holdings" or "daily holdings" page that will show you exactly what they are buying.
Keep in mind that inverse ETNs don't hold any assets, since an ETN is just a debt instrument issued by a bank that follows an index — read more about ETNs), so it is easy for an ETN to be an inverse ETN.
Inverse ETFs are tricky to use
It can be difficult to figure out how to effectively trade an inverse ETF, especially an inverse stock ETF. Remember, over long periods of time, the U.S. stock market always goes up. So using an inverse ETF to trade the U.S. stock market is difficult, because you are making a trade that is counter to the long-term trend. Using an inverse stock market ETF requires a degree of market timing that is extremely difficult. So obviously, inverse ETFs are considered to be short-term trading tools only that need to be carefully monitored and used.
At times, the huge volume of trading in inverse ETFs seems hard to believe, especially when the U.S. stock market has been in a 7 or 8 year bull run.
Inverse ETFs are being used in different ways, depending on the type. So let's discuss a few of the most active types of inverse trades.
Equities
The high volume of trading in inverse equity ETFs is difficult to understand in the middle of a stock market bull run. In the middle of a bull run, it is really difficult for an investor to time a short-term market dip. You have to buy an inverse ETF when the market is in a short-term correction, and sell it before the market recovers, which can be a difficult exercise in market timing. Can sophisticated traders make money during a short-term market dip using automated software programs and technical indicators? Maybe, but it is difficult.
We suspect the high volume of trading in inverse U.S. equity ETFs is attributable to a combination of factors:
- Traders who really believe the stock market is about to decline.
- Traders who are using automated software programs to buy and sell leveraged and inverse ETFs based on short-term technical indicators.
- Traders who are arbitraging the "decay" effect of leveraged 3x ETFs. Some people buy both "pairs" of leveraged 3x ETFs at the same time: the leveraged 3x long ETF, and the leveraged 3x inverse ETF. Because of daily resetting and compounding, the pairs don't perform over the long-term like you would expect. So traders are trying to arbitrage that.
- Traders who are using a long/short strategy. Some people are using long/short strategies on equity markets. For example, simultaneously going long the U.S. stock market while going short European stock markets, similar to a 130/30 long-short strategy with individual stocks.
- Investors who try to use leveraged inverse ETFs as a small hedge in their portfolio. We have read about people trying to use inverse 3x ETFs as a hedging tool in a long portfolio. The math seems a little hard to figure out, but someone probably has.
U.S. Fixed Income
There are a lot of inverse fixed income ETFs. A lot of the trading of inverse U.S. fixed income ETFs makes sense, or is easier to understand, because traders are making short-term bets on rising U.S. interest rates. Inverse ETFs like TBT, TMV, and TBF and others will go up in value if interest rates start to rise in the United States.
VIX Futures
There are several inverse ETFs related to VIX futures that are heavily traded - see SVIX and SVXY. Because VIX futures tend to go up or down in the opposite direction of the U.S. stock market, SVIX and SVXY are inverse ETFs that are basically ways to go long the U.S. stock market, but in a highly leveraged, highly volatile way. So the high volume of trading in SVIX and SVXY makes sense, although the effective leverage and volatility involved is unbelievable. Read What is the VIX? and Volatility ETFs if you are new to VIX futures.
Commodities
Because commodity prices go up and down such much, there has always been a ton of trading of inverse ETFs that track the price of oil, natural gas, gold and silver. Similarly, there has always been a ton of trading of the stocks of companies that mine for gold and silver, partly because their stocks tend to not be highly correlated with the overall stock market (and they are correlated with the prices of gold and silver).
We don't have the data to prove or dispute this at this time, but some people believe that commodity prices are more "trendy" — i.e. once they start an upward or downward trend, they are more likely to stay in that trend until some event causes a trend reversal. If true, inverse commodity ETFs should theoretically be easier to short-term trade.
Why do inverse ETFs have dividends?
Inverse or short ETFs can have dividends for two reasons. Inverse ETFs use derivative products, including futures contracts and/or swap agreements, to obtain short exposure to indexes or benchmarks. These derivatives generally provide the fund with the desired short exposure to an index or benchmark, but sometimes it does not take all of the fund's cash to purchase the required derivatives. As a result, the fund may have excess cash available to invest in short-term debt securities and/or money market instruments. This generates net investment income that has to be distributed to shareholders.
Alternatively, during the course of buying and selling
futures contracts and/or swap agreements, the fund may generate short-term capital gains, which also have to be distributed to shareholders.
All 40 Act ETFs are required by IRS regulations to distribute substantially all of their net investment income and capital gains to shareholders at least annually.
List of inverse or short ETFs
Here is the list of inverse ETFs that are currently active in our database. Click the "analyze" button if you want to just read more about some of these inverse ETFs.
| Name | Symbol | Last price | Currency |
|---|---|---|---|
| PROSHARES SHORT MIDCAP 400 | ARCX:MYY | 19.20 | USD |
| -1x Short VIX Mid-Term Futures Strategy ETF -1x Short VIX Mid-Term Futures Strategy ETF | BATS:ZIVB | 20.50 | USD |
| ProShares UltraShort FTSE Europe ETF | ARCX:EPV | 42.08 | USD |
| ProShares UltraShort Energy | ARCX:DUG | 43.87 | USD |
| Direxion Daily Dow Jones Internet Bear 3X Shares | ARCX:WEBS | 33.11 | USD |
| Direxion Daily Junior Gold Miners Index Bear 2X Shares | ARCX:JDST | 30.27 | USD |
| ProShares UltraShort Utilities | ARCX:SDP | 17.00 | USD |
| DRX DLY FTSE CHINA BEAR 3X | ARCX:YANG | 70.69 | USD |
| ProShares UltraShort Semiconductors | ARCX:SSG | 27.81 | USD |
| ProShares UltraShort Russell2000 | ARCX:TWM | 44.58 | USD |
| Dynamic Shares Trust Dynamic Short Short-Term Volatility Futures ETF | ARCX:WEIX | 25.57 | USD |
| MicroSectors FANG & Innovation -3x Inverse Leveraged ETN | ARCX:BERZ | 12.85 | USD |
| Direxion Shares ETF Trust Direxion Daily Crypto Industry Bear 1X Shares | ARCX:REKT | 22.90 | USD |
| ProShares Short Real Estate | ARCX:REK | 17.82 | USD |
| Tidal Trust II YieldMax Short COIN Option Income Strategy ETF | ARCX:FIAT | 8.67 | USD |
| ProShares UltraShort Real Estate | ARCX:SRS | 53.66 | USD |
| GraniteShares 1.5x Short TSLA Daily ETF | XNAS:TSDD | 1.60 | USD |
| ProShares Short MSCI EAFE | ARCX:EFZ | 16.99 | USD |
| ProShares UltraShort Silver | ARCX:ZSL | 40.10 | USD |
| Direxion Daily Semiconductor Bear 3x Shares | ARCX:SOXS | 23.05 | USD |
| PROSHARES ULTSHRT MSCI EM | ARCX:EEV | 17.31 | USD |
| Direxion Daily 10-Yr Treasury Bear 3x | ARCX:TYO | 14.82 | USD |
| PROSHARES ULTRASHORT FTSE CH | ARCX:FXP | 18.25 | USD |
| Direxion Shares ETF Trust Direxion Daily Concentrated Qs Bear 1X Shares | ARCX:QQQD | 16.58 | USD |
| ProShares UltraShort Consumer Staples | ARCX:SZK | 12.66 | USD |
| Bank of Montreal MicroSectors Travel -3x Inverse Leveraged ETN | ARCX:FLYD | 15.09 | USD |
| ProShares Short 7 10 Year Treasury | ARCX:TBX | 29.90 | USD |
| ProShares Short FTSE China 50 | ARCX:YXI | 13.92 | USD |
| ProShares UltraShort S&P500 | ARCX:SDS | 19.66 | USD |
| Tidal Trust II YieldMax Short TSLA Option Income Strategy ETF | ARCX:CRSH | 6.45 | USD |
| VS TR -1x Short VIX Futures ETF | BATS:SVIX | 24.70 | USD |
| ProShares Short High Yield | ARCX:SJB | 16.49 | USD |
| ProShares Trst UltSht Lhmn 20+ Yr Trsry | ARCX:TBT | 36.25 | USD |
| MicroSectors Gold Miners -3X Inverse Leveraged ETNs | ARCX:GDXD | 16.46 | USD |
| UltraPro Short MidCap400 | ARCX:SMDD | 9.01 | USD |
| ProShares UltraShort MidCap400 | ARCX:MZZ | 9.87 | USD |
| Direxion Daily 20-Year Treasury Bear 3X | ARCX:TMV | 38.49 | USD |
| ProShares Short 20+ Year Treasury | ARCX:TBF | 24.57 | USD |
| MicroSectors Oil & Gas Exp. & Prod. -3x Inverse Leveraged ETN | ARCX:OILD | 19.33 | USD |
| Tidal Trust II YieldMax Short NVDA Option Income Strategy ETF | ARCX:DIPS | 13.32 | USD |
| Direxion Daily AAPL Bear 1X Shares | XNAS:AAPD | 15.17 | USD |
| ProShares Short Russell2000 | ARCX:RWM | 18.86 | USD |
| ProShares UltraShort Nasdaq Biotechnology | XNAS:BIS | 18.20 | USD |
| ProShares UltraShort MSCI Japan | ARCX:EWV | 43.49 | USD |
| Ranger Equity Bear Bear ETF | ARCX:HDGE | 17.55 | USD |
| Direxion Daily NVDA Bear 1X Shares | XNAS:NVDD | 6.53 | USD |
| ProShares Short VIX Short-Term Futures E | BATS:SVXY | 49.17 | USD |
| Tradr 1.5X Short NVDA Daily ETF | XNAS:NVDS | 28.89 | USD |
| ProShares UltraShort SmallCap600 | ARCX:SDD | 15.21 | USD |
| Direxion Daily S&P 500 Bear 1X Shares | ARCX:SPDN | 11.02 | USD |
| ProShares Short Financials | XNYS:SEF | 35.96 | USD |
| ProShares UltraShort Financials | ARCX:SKF | 35.67 | USD |
| Bank Of Montreal MicroSectors Gold -3X Inverse Leveraged ETNs due January 29, 2043 | ARCX:DULL | 8.66 | USD |
| DB Gold Double Short ETN | ARCX:DZZ | 1.60 | USD |
| Direxion Daily META Bear 1X Shares | XNAS:METD | 19.97 | USD |
| ProShares UltraShort Bloomberg Natural Gas | ARCX:KOLD | 51.04 | USD |
| ProShares Short S&P500 | ARCX:SH | 42.66 | USD |
| ProShares Short SmallCap600 | ARCX:SBB | 14.69 | USD |
| ProShares UltraShort Health Care | ARCX:RXD | 11.94 | USD |
| ProShares Trust ProShares UltraShort Bitcoin ETF | ARCX:SBIT | 11.22 | USD |
| ProShares UltraShort Materials | ARCX:SMN | 16.55 | USD |
| ProShares UltraPro Short 20 Year Treasury | ARCX:TTT | 79.31 | USD |
| ProShares Trst UltSht Lhmn 7-10 Yr Trsry | ARCX:PST | 24.28 | USD |
| ProShares UltraShort MSCI EAFE | ARCX:EFU | 16.37 | USD |
| Bank Of Montreal MAX Auto Industry -3x Inverse Leveraged ETN | ARCX:CARD | 6.47 | USD |
| Tuttle Capital Daily 2X Inverse Regional Banks ETF | XNAS:SKRE | 13.68 | USD |
| Emerging Markets Bear 3x Shares | XNYS:EDZ | 8.92 | USD |
| ProShares Short Dow30 | XNYS:DOG | 26.74 | USD |
| ProShares Decline of the Retail Store | ARCX:EMTY | 13.00 | USD |
| ProShares Trust ProShares UltraShort Ether ETF | ARCX:ETHD | 21.40 | USD |
| ProShares UltraShort Consumer Discretionary | ARCX:SCC | 9.05 | USD |
| Roundhill Daily Inverse Magnificent Seven ETF | XNAS:MAGQ | 18.90 | USD |
| Direxion Shares ETF Trust Direxion Daily AI and Big Data Bear 2X Shares | ARCX:AIBD | 15.33 | USD |
| ProShares UltraShort Industrials | ARCX:SIJ | 8.32 | USD |
| T-Rex 2X Inverse Tesla Daily Target ETF | XNAS:TSLZ | 2.45 | USD |
| Direxion Daily AMZN Bear 1X Shares | XNAS:AMZD | 11.33 | USD |
| AXS TSLA Bear Daily ETF | XNAS:TSLQ | 26.91 | USD |
| ProShares UltraShort Dow30 | ARCX:DXD | 26.90 | USD |
| Direxion Daily S&P 500 High Beta Bear 3X Shares | ARCX:HIBS | 18.41 | USD |
| Direxion Daily GOOGL Bear 1X Shares | XNAS:GGLS | 12.15 | USD |
| Direxion Daily MSFT Bear 1X Shares | XNAS:MSFD | 13.37 | USD |
| AdvisorShares Dorsey Wright Short | XNAS:DWSH | 7.50 | USD |
| Direxion Daily S&P 500 Bear 3X | ARCX:SPXS | 6.14 | USD |
| GraniteShares 1.5x Short NVDA Daily ETF | XNAS:NVD | 32.64 | USD |
| MicroSectors FANG Index -3X Inverse Leveraged ETNs due January 8, 2038 | ARCX:FNGD | 13.05 | USD |
| Drx Dglmn Inbr3X | XNYS:DUST | 67.38 | USD |
| Simplify Volatility Premium ETF | ARCX:SVOL | 21.08 | USD |
| DB Gold Short ETN | ARCX:DGZ | 8.20 | USD |
| ProShares UltraShort Bloomberg Crude Oil | ARCX:SCO | 17.91 | USD |
| Bank Of Montreal MAX Airlines -3X Inverse Leveraged ETNs | ARCX:JETD | 11.99 | USD |
| ProShares Short QQQ | ARCX:PSQ | 37.55 | USD |
| ProShares UltraPro Short Russell2000 | ARCX:SRTY | 18.83 | USD |
| GraniteShares 1x Short AMD Daily ETF | XNAS:AMDS | 16.12 | USD |
| Direxion Daily TSLA Bear 1X Shares | XNAS:TSLS | 7.89 | USD |
| ProShares Short MSCI Emerging Markets | ARCX:EUM | 26.90 | USD |
| ProShares UltraShort Gold | ARCX:GLL | 17.52 | USD |
| AXS Short Innovation Daily ETF | XNAS:SARK | 45.21 | USD |