5 Reasons to Go Short in 2010

#5 You Can Short Sectors Using ETFs

It’s easy to short an entire sector by buying put options on an exchange-traded fund (ETF), which cover everything from financials to emerging markets. Do you really believe Chinese economic statistics? If not, buy puts on the PowerShares Golden Dragon Halter USX China ETF (PGJ)? Do you anticipate a meaningful rebound in housing? No. Short the SPDR S&P Homebuilders (XHB). Don’t see a boom in retail this year? Short the SPDR S&P Retail (XRT).

You can also use inverse ETFs or double-inverse ETFs, which go up when the securities they track go down, and are popping up faster than uninvited guests at the White House. Many are currently at incredible prices, and they are less volatile than simple puts. You can also buy calls on these ETFs and create a rocket-fueled trade where a 1% down move in a segment index can create a 40% or more move in one day in an options position.

Learn How to Cash in on the ETF Craze.