Inverse ETFs In A Bear Market | Podcast Episode #283

0:07
Hey, I’m Ryan Mallory and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan.

0:31
Mallory with swing trading the stock market, and today’s episode, we’re Talk about treating with ETFs, that’s exchange-traded funds, and a bear Market. Why do I do that? So much of late for the most part all of 2022 has been exchange-traded funds.

0:49
So this question comes from a guy who will call them birdie-birdie rights and he actually wrote this on Instagram and a comment. I just happened to see it and I thought, you know what, that’s a good question. I think I can make a podcast out of that. So that’s exactly what I’m doing here. So birdie with the comment, right?

1:05
Keep up the great work. Maybe a podcast episode about how you choose inverse plays in times like this. That’s a good question and we’re going to answer that and detail but first what am I drinking? Oh guys, this is a good one here. This is Garrison.

1:20
Brothers never had it before Guadalupe Texas. Straight bourbon whiskey finished in a port. Caskets fifty, three and a half percent alcohol, 107 proof. This is bottle number 1727. The release date was 20. Me too.

1:36
I’ve never had Garrison Brothers, It’s always staring me at the face in the stores, wife is always him Ryan when we ever going to try that when a man’s got the coolest-looking bottle and it is the way they dip the bottle in the wax to seal it off on the top, it’s pretty cool. Now to the, I man, this thing is really dark.

1:52
I mean, really dark brown. Beautiful color, though. I mean, just a really pretty dark deep color to the nose, man. I’m smelling nothing, but raspberries a little bit of caramel, no ethanol, though. I Love it when I don’t smell the ethanol man because I hate that smell like, I’m at a gas pump or something.

2:10
Just doesn’t appeal to me at all to The Taste man. It is really complex, I mean, when I say complex, I mean it’s just got a lot of characteristic to it. A lot of depth. Now I gotta tell you. It took was the sensations man. You got flavors of chocolate.

2:25
You got flavors of raspberry you picking up on the sentiment. Essentially you taste is exactly what they say on the side of the bottle and the bottle. It says it’s charred and white American Oak. Do Helping caramel raspberry, cinnamon and chocolate notes. I’ve got to tell you. This thing is really good in the finish.

2:41
The Finish is not immediate. It gives you a little bit of time to savor and enjoy that taste. It’s got some really good. Spice fact, amazing spice to it, little bit of a kick there at the end. Just to let you know, hey, I am over, 100 Proof here, it’s all around amazing. I would say this is one of the top burdens that I’ve ever had.

3:00
I’m given a 97. I know, that’s crazy. I’ve never even had Garrison Brothers until now, and they got Got a lot of different lines but this Guadalupe is amazing, the price points $150. I put it right up there with Blanton straight from the barrel. That one I gave a 9.8, I gave eh Taylor a nine point six so I’m saying it’s better than th Taylor.

3:20
Uh, Taylor’s really good in my opinion. I put this one right in between those two and there’s probably some days where I will drink this and I’ll say this is actually better than the straight from the barrel, it’s just really good. I mean, there’s just a lot going on. I mean, it’s a very, very complex with Incredible flavors, kind of a drink.

3:38
So, there you have it Garrison, Brothers, 9.7, it’s the Guadalupe version. All right, back to birdie here. Essence, why am I using these leveraged ETFs and bear markets? How do I choose when to use them? Well, to be honest, I don’t always use them at the right time, right?

3:55
Because as Traders, we have losing trades, we have trades that we get into that in hindsight was to earlier, it was to later, we pressed it or we didn’t press it enough, we aren’t simply on the wrong side of the The trade when we should have been long. We were short or short. We should have been long. So that’s just a fact of trading.

4:12
But now, why do I use these inverse ETFs? And the bear Market will for one. One of the biggest characteristics of a bear Market is the increase volatility. There’s way more volatility in a bear Market than there is in a bull market. So I talked about controlling the risk all the time, controlling the volatility in your portfolio, being able to have a portfolio, whatever the beta is like that’s safe.

4:35
Instance, your portfolio is beta is 2. That means when the stock market goes up, 1%, you’re probably going up two percent. And if it goes down 1%, you’re going down 2% of stock market. Crashes goes down, like five percent. You’re probably going to be down. 10% your portfolio. Beta is important.

4:51
It’s why you don’t always see me when it comes to the, like a bull market where I’m just loaded to the gills with speculative software high growth stocks. There’s usually going to be some value in there as well because I’m trying to tame the beta a little bit to where it’s not out of hand. Or uncontrollable of unforeseen event happens.

5:07
And for those who don’t know what beta is, it’s essentially how much more does a stock move relative to the S&P 500. So a stock with a beta 5, which is like insanely high risk, would be a very high-risk trait. So we’re in very volatile times.

5:23
You’re seeing the S&P 500 at any given time drop three or four percent. So if you have a high beta portfolio, you’re going to see a much bigger return or loss in your portfolio and individual stocks have less. Take the ability, then the ETS and in an unpredictable Market.

5:39
I like to have as much predictability as humanly possible. So if I feel like the Spy or the S&P 500 is going to go down. I want something that’s going to reflect that. Probably the worst thing you can do is in a bear Market, have short positions that are going up and the markets going down.

5:55
It not only is it humiliating but it’s just like why even try if that’s the case? And that can’t happen. I mean, you look at how many times Apple has been up when the market was trading lower Ortez Isla or Amazon. I mean those stocks have bucked. The trend many a times even lately, you see Netflix bucking the trend.

6:10
You would think Netflix would go down when the markets going down because it hasn’t been the best company over the past couple of years. However, over the last couple months, it’s shown a lot of relative strength versus the market. So I don’t want that. I don’t want to be short on a stock that’s going up when the markets going down and that’s very possible.

6:26
When you’re shorting individual stocks, it doesn’t mean that I won’t short individual stocks, but right now I’m getting a pretty good return off of trading the inverse Then I’m even using the leverage ones at times too, but then you’re thinking to yourself Ryan, if you’re trading like a 2 to 1, leverage DTF isn’t that a lot of bait in your portfolio and it might be from an individual stock standpoint, but I’m not putting all my Capital to work in this market.

6:49
See, I use fewer positions in a bear Market. Why? Because I let the volatility do the work for me. I don’t have to get 100% short on this Market. I can get short, two, three, four positions. And that the volatility almost give me the same result as if I was walking on the market with 10.

7:05
Positions in a bull market so that leveraged ETFs gives me a little bit more control a little bit more predicting power because if I know that the S&P 500 or I believe that the S&P 500 is going to go down, probably one of the best ways to play that is simply by being in the S&P 500.

7:21
I can be 2 to 1. I can be 3, 2 1 or I can be one to one meaning the amount that I get in terms of return. So the one that I’ve probably used, more than any of them is SDS on the spike uid on the NASDAQ 100. And at They have used sqq and SPX you, but those have been few and far between.

7:41
I’ve also used the one to one. So the sqq gives you a 3, 2 1 inverse Return of the NASDAQ 100 SP X. You gives you a 321 in verse Return of the S&P 500, but I’m only using those. When I have a high level of confidence in the direction that the markets going plus, I can get in there with a good reward to risk set up without having to go like seven or eight percent stop-loss.

8:04
I can get and maybe with like a three or four percent stop loss. Now, there’s a greater chance still that I’ll be stopped out because it only takes a 1% countermove against my position and the S&P 500 to knock me out on a trade that I might have a 3% Stop Lawson.

8:22
So most of the time I’m doing two to one or one to one because they usually have the best reward to risk ratio.

8:38
So you will also see me at times if I have a two to one already my portfolio, I won’t necessarily follow it up with another to 21 and verse ETF. I’ll usually follow it up with a one-to-one inverse ETF just because I want to be able to Control and manage the risk in my trades.

8:54
But it goes back again to the number of positions that I have. Am I going to 21 to the downside it with 100% my portfolio know? Oftentimes it’s like 15 to 30 percent of my portfolio is being used but there’s enough volatility in the market to where I can capitalize off of it.

9:22
Not so much from a percentage standpoint every time because you can’t always control the percentages. There’s been times where I have been long SDS which is a 22, 1 inverse ETF of these spy and I might be down 3%. My stop loss is about 4% and then I wake up the next morning and the markets gapping up about 1%, which means I’m taking a 5% loss that does happen with swing tree.

9:45
So you’re not always able to control the percentage against you, but you can control the exposure. How much of your Capital do you have exposed to the whims of the market?

10:00
Like, you don’t have much room for error, especially if you’re using, let’s say, you’re using a 6% stop. Boss with a 3 2 1 inverse ETF. That means a 2% countermove and a bear Market which is very possible takes you out of a trade. And for me most of my stop losses are somewhere between three and four percent.

10:18
So that means if I’m using a 3%, stop loss on let’s say s QQ Q which is the 3 2 1 inverse ETF for the NASDAQ. If I’m using that kind of a stop loss, I better be right. I can’t afford for some kind of like midday countermove of 1% back to the Upside because I’ll be knocked out.

10:37
Then you have the 1 1, inverse ETS. Yes, they’re a little bit more boring. You get into P SQ for the NASDAQ or you get into sh for the S&P 500. That’s the inverse ETFs, they’re boring. They’re not very fun, they don’t move as much but they do offer you the ability to be very patient with them.

10:54
I just closed out psq the other day, hold it for over a month made about 11% on it and I still have sh which currently has about 7.2 percent again so you can make profits off of it. It but it’s a little bit more Steady As She Goes, but the benefit of a one-to-one is that you don’t have to time your entry as perfectly as you do, if you were trading.

11:15
A three, two, one, you can be much more patient. It’s usually a little bit more forgiving and in between you have the to 21, which incorporates a little bit of three, where you can get a lot more of a return and also some of the 121 inverse ETF that gives you a little more room to be patient with your entry price in the duration of the trade.

11:35
The three, two one, where you better be spot-on. Also, you get a lot of wild news in a bear Market. One of them that we’ve seen a lot lately, is companies just coming out of the blue, not at earnings, but just announcing pre announcing earnings and say, hey, we’re going to have a bad earnings period.

11:51
This is what we’re looking at here, or they’re coming out with new guidance for the future or they’re just coming out with some really heinous news and if you’re long on it that’s not good and if you’re short on it yeah that might actually work out for you but there’s also So times where they may come out with news, whether it’s an upgrade, because it’s falling so much.

12:08
And a brokerage comes out as a, hey, we’re upgrading the stock and it shoots up, 10% and a beer market. I like to take as many of those variables out of the equation and yes, a good news piece for apple is going to send the NASDAQ a lot higher, but it won’t send it as high off of that news piece as it will for Apple individually and as stocks get cheaper and cheaper, there’s also the potential for buyout risk.

12:29
Some of these cash-rich companies like apple, they may start taking a chance on some of these companies that have just been released. Dick, you lessly knocked lower as a result of this bear Market. They’ll use as an opportunity to buy the company and as we all know, you don’t know when a buyouts going to be coming.

12:44
And finally, you have short squeezes, you can be shorting an energy ETF and maybe you get caught in a short, squeeze where the energy sector rallies 2%. But if you’re in Slumber, J or if you’re in Hess those energy, stocks might be rallying 10 or 11 percent.

13:00
And so, you’re really taking it on the chin there. What we’re trying to do is avoid costly mistakes in the pair. Market and let me tell you, short squeezes are absolutely brutal to get caught in but what’s really good is swingtradingthestockmarket.com, that’s my website guys. That’s going to be what gives you all of my stock market research each and every day.

13:19
It’s a phenomenal benefit to the listeners or so many of you guys that have already taken part in this. And I’d encourage you guys that haven’t to try it with swingtradingthestockmarket.com, you’re going to get all my market research that includes my watch lists stocks to them looking at each day as Trades.

13:35
Also, you’re going to get updates on the S&P 500 and on all the big tech stocks and I’m sending out videos each and every day for you guys to look at. So, check that out. swingtradingthestockmarket.com. So let’s wrap this up here with what we’ve talked about so far, bear markets, they have more volatility than the bull markets.

13:53
Therefore I want to be able to try to do everything, I can to control the beta and my portfolio be able to control as much of the outcome as possible. So I use a lot of the inverse ETFs doesn’t mean that I won’t ever use and Individual stock too short. I’ve done it plenty in the past, I’ll do it again in the future just right now I haven’t had a better reason to trade it individual stock, over an inverse ETF and that’s mainly because managing risk is far more important than anything else in our trading and it rings, especially true in a bear market and the inverse ETFs, they can also have leverage to them.

14:25
That there’s two to one. There’s three, two, one, I haven’t ever seen any 421. I’m not saying that it’s not out there, I’ve just never, you know, considered it or pondered it. I don’t think I need that in my life. But the more leverage, that’s n, an individual ETF, the more right, you have to be the more spot on you have to be with your trades because there’s not a lot of room with a three-to-one to let that thing.

14:47
Run. Three percent against you on the S&P 500 because there’s not a lot of room to run on a leveraged ETFs that’s 321. Like, SPX you and the market goes up, 3%, you’re going to get squeezed out and take a nine percent loss. So it’s very important not to look at SPX you or Q or any of the three to one leverage DTS, as simply a way to make greater profits, you need to look at it more.

15:11
So, from the potential risks that are involved. I remember when you go down to a one to one, you can be so much more patient and there’s a better chance and a bear Market that you’ll be right versus a three, two, one, and be profitable and inverse, ETFs takes a lot of the risk that’s involved with individual, stocks in a bear Market, out of the equation.

15:29
So, you know what you’re getting. And if you can get the timing of the market, right? Then all those other variables from Individual stocks. I pretty much go out the window, so if you enjoyed this episode, I would encourage you to leave a five, star review, on whatever platform, you’re listening to because those do mean the world to me and to check out swingtradingthestockmarket.com and the send me emails ryan@shareplanner.com of your questions that you have as it pertains the trading.

15:49
And I get to most guys, I really do. I love hearing from you guys. I love hearing what you guys have to say. So keep sending them my way. Thank you guys and God bless. Thanks for listening to my podcast. Swing trading the stock market. I like to encourage you to join me in the SharePlanner trading block, where I navigate.

16:05
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16:24
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