To The Moon

Since the beginning of 2022, the US stock market has experienced significant downside risks. Last week, the top 5 hot stocks in the Tiger Community all declined by varying degrees.

Under this backdrop, I recommend you to learn how to short the market and make a profit from downside trends.

You can short one stock or the broader market.

When you short one stock, you need to analyze the company performance, the industry characteristics, and the market trend. Instead, it’s easier to bet against the broader market because all you need to do is predict the overall trend.

This article will tell you how to short the US stock market by using two strategies.

Trading the VIX and SQQQ are two different strategies for shorting the broader market.

When you predict a declining market in the short term, you can choose VIX; and for the medium-term trends, you can choose SQQQ.

ⅠHow to use VIX

The $Cboe Volatility Index(VIX)$ , commonly called as "Fear index", is a real-time market index representing the market's expectations for volatility over the coming 30 days.

VIX trends in the past 30 years

The VIX is an index and cannot be traded. Investors can trade "VIX futures contracts" and "VIX options". Generally, retail investors can only trade "VIX options".

You need to be cautious about its mean reversion characteristics: if the VIX falls to 15, it’s highly likely to rebound, meaning that the broader market will fall in the short term; if the VIX surges to 30, it may start to go down and the broader market will rise.

You can buy VIX "call options" to short the market in the short term. With its mean reversion tendency, you may sell these "call options"when the VIX is close to 30. 

When the market plunges, the high volatility of the VIX means high returns. So by using the VIX to short the broader market, you can efficiently use your money in a down market. VIX "call options" with leverage will bring you especially considerable returns.

ⅡHow to use SQQQ

The $ProShares UltraPro Short QQQ(SQQQ)$ is a 3x leveraged inverse ETF that tracks the $NASDAQ 100(NDX)$ , which is heavily weighted toward technology and telecommunications stocks.

The reason for shorting the broader market with SQQQ is very simple. If the broader market plummets, growth tech stocks will be badly hit.

Here are some points I’d like to inform readers of:

1. You choose SQQQ when you anticipate the broader market will go down in the medium-term.

2. As I mentioned before, you can use “call options” to increase your leverage.

3. However, it is important to note that long positions generally can be held for a long time, while short positions can’t. Therefore, you should be particularly cautious about using medium-term shorting strategies.

Share anything you want to discuss in the comment section and I will reply to your message.