3 Bearish ETFs To Profit Bullish Counterparts With Elevated Short Interest

3 Bearish ETFs To Profit Bullish Counterparts With Elevated Short Interest

It's not just stocks that are made for shorting. Plenty of traders tap exchange-traded funds on the bearish side of things and do so for a variety of reasons.

In some cases, traders will short ETFs to hedge against long exposure in a particular sector or stocks. In other instances, they're simply selling short broader market funds as an avenue for betting on downside. As S3 Partners data indicate, broader market funds are usually among the most shorted ETFs, but there are some sector and industry plays on the recent lists as well.

For traders that want to potentially gain on the downside, drawing inspiration from that the recent batch of most heavily shorted ETFs, here are some ideas to consider.

Direxion Daily S&P Biotech Bear 3X Shares (LABD)

Only two ETFs have larger short interests in dollar terms than the SPDR S&P Biotechn ETF XBI. The  Direxion Daily S&P Biotech Bear 3X Shares LABD is the triple-leveraged inverse answer to that popular biotech fund.

As highlighted by XBI's 15.48% gain over the past month, shorting biotech, particularly in the coronavirus environment, is highly risky and doing so with LABD is even more so, but some argue the biotech trade is crowded and needs a respite, potentially making LABD an interesting short-term idea. Emphasis on “short-term.”

Direxion Daily MSCI Emerging Markets Bear 3X Shares (EDZ)

Not surprisingly, shorts are hiding out in the iShares MSCI Emerging Markets ETF EEM. To be precise, there's $3.7 billion of short interest in the fund, and traders taking that stance are being rewarded. Although EEM is higher over the past week, it's lower by almost 19% this year.

The Direxion Daily MSCI Emerging Markets Bear 3X Shares EDZ is designed to deliver triple the daily inverse returns of that index.

Beyond the short interest, EDZ is worth considering because outside of China, a broad swath of EEM's are currently in bear markets.

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