Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Alternative ETFs, Hedge Funds For the Little Guy

Companies / Exchange Traded Funds Feb 11, 2010 - 08:58 AM GMT

By: Ron_Rowland


Best Financial Markets Analysis ArticleWhether you’re investing in stock exchange traded funds (ETFs), bond ETFs, commodity ETFs, currency ETFs, international ETFs, or even inverse ETFs, you’re stuck with one big problem: Any way you look at it, you are making a one-sided bet on the future direction of a specific market segment.

Of course, if your timing is right, you can make a lot of money with these bets. If your timing is wrong, you stand to lose.

Well, here’s some good news: Now there are ETFs that don’t force you to bet long or short. Some take a blended approach that combines both bullish and bearish market positions, while others bypass the question entirely and try to make money in other ways.

With alternative strategy ETFs, you don't have to take sides.
With alternative strategy ETFs, you don’t have to take sides.

Today I’ll tell you about some of these special ETFs and why they might be just what the doctor ordered for these crazy markets …

Hedge Funds for The Little Guy

You’ve probably heard about hedge funds, those super-secretive private pools where millionaires stash their money. Yes, sometimes they blow up. But many hedge funds have a long history of good returns in all market conditions. They do this by combining sophisticated trading techniques with long and short positions in various markets.

The problem is that the best hedge funds aren’t available to everyday investors in small amounts. I can’t change that for you. But I can point you to some ETFs that try to use similar strategies.

“Alternative” is the name often used with this category of ETFs because they typically do not take a “traditional” approach to stock, bond, and commodity investing. And if you start looking into this category of ETFs, you’ll soon run into the cryptic-sounding term “130/30.” This refers to a portfolio tool that involves using leverage to combine a 130 percent long position with a 30 percent short position.

130/30 works like this: Say you have $1 million to invest. You borrow another $300,000 and invest $1.3 million in stocks you think will go up. At the same time, you enter a short sale of $300,000 in stocks you think will go down.

In this scenario your net position is 100 percent long — but if you pick the right stocks, your longs will go up and your shorts will go down. You’ll make money on both sides of the market. This is a simple variation of what many hedge funds do (with far greater leverage in some cases).

Two ETFs attempt to implement this sort of program for you — choosing the stocks to buy and short and giving it to you in one neat package:

  • ProShares Credit Suisse 130/30 (CSM)
  • First Trust Enhanced 130/30 (JFT)

So far their track record is mixed. But this category of ETFs hasn’t been around long enough to make a firm judgment yet.

Hedge Fund Replication: Beyond 130/30

Of course, 130/30 isn’t the only hedge fund-like ETF category. There’s another group of ETFs that uses a variety of strategies like long/short, global macro, merger arbitrage, and more. Some are even referred to as “hedge fund replication ETFs.”

Like the 130/30 ETFs mentioned earlier, most of these ETFs are too new to have developed a track record and trading is often spotty. These may catch on with investors over time, but for now I would suggest that you only window shop — it’s nice to see what’s out there, but maybe not a good idea to plunk down your hard-earned cash just yet.

Here are some ETFs to look at if you want to get a better understanding of this category:

  • iShares Diversified Alternative Trust (ALT)
  • IQ Hedge Macro Tracker (MCRO)
  • IQ Hedge Multi-Strategy Tracker (QAI)
  • IQ ARB Merger Arbitrage (MNA)
  • IQ CPI Inflation Hedged (CPI)

Earn Option Income with Buy/Write ETFs

You might be familiar with an investment technique known as “covered call writing.” Sounds fancy but it’s really quite simple. You just buy a stock and then sell an equivalent amount of call options against it. So what happens next?

Three possibilities:

First, if the stock goes up and stays there until your options expire, your shares will be “called” away from you at the prearranged strike price you picked. So in effect, you’ll be forced to sell at a profit. Maybe the stock will go up even more after you sell it. But no one ever went broke by grabbing a gain.

Second, the stock could go down, and you’ll keep it or sell it at a loss. But your loss will be reduced by the amount of the income you received from selling options that expire worthless.

Selling options can put extra cash in your pocket.
Selling options can put extra cash in your pocket.

Third, the stock could go sideways. Then you have neither profit nor loss on your shares, but you’ll get to keep the option-selling income. And you’ll still have your stock and can do the same thing all over again!

This strategy, also known as “Buy/Write,” is great for income-seeking investors who don’t want to desert the stock market completely. It’s also tailor-made for range-bound, choppy market conditions.

Here are some ETFs and ETNs (exchange traded notes) that apply the covered call technique to the S&P 500 and Nasdaq 100 Indexes:

  • PowerShares S&P 500 Buy/Write (PBP)
  • iPath CBOE S&P 500 Buy/Write ETN (BWV)
  • PowerShares Nasdaq 100 Buy/Write (PQBW)

Make Money from Market Volatility with VIX ETNs

When people say the market is “volatile” they usually mean “It’s going down!” However, volatility really means movement — in either direction. A volatile market is one that is likely to make a big move in the near future. Whether that move will be up or down is a different question.

Volatility means movement up or down.
Volatility means movement up or down.

Volatility is very important to futures and options traders. That’s why they developed ways to measure it, including the Volatility Index, or VIX. The VIX is a metric that expresses the amount people are willing to pay for call and put options on the S&P 500.

In practice, the VIX is a kind of “fear gauge” for the stock market. It tends to be low when investors are optimistic about stocks, and tends to surge higher when they are overwhelmed with fear. Extremes at either end can be a good, contrarian market timing indicator.

Barclays, under the iPath brand name, offers a pair of ETNs that attempt to track VIX futures for either the short-term or medium-term. Here are the names and tickers:

  • iPath S&P 500 VIX Short-Term Futures ETN (VXX)
  • iPath S&P 500 VIX Mid-Term Futures ETN (VXZ)

Keep in mind that ETNs have some unique characteristics that make them riskier than ETFs in certain ways. Nonetheless, they can be very useful tools. Most important though is that these ETNs can go up when the stock market is falling. That’s a nice capability to have in today’s wacky market.

Best wishes,


This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in