Quote from mbusch:
An "ultrashort" or "double short" ETF is one that tracks -200% (that's a minus sign) of the underlying index, so it moves in the opposite direction with as the underlying index with twice the volatility.
For example, SDS tracks -200% of the $SPX, so if the $SPX goes down by 3% then SDS goes up by 6%. (And vice-versa, of course.)
The most widely-traded double-short ETFs (which trade at least in the millions of shares per day) include:
SDS -- double-short S&P 500
QID -- double-short NASDAQ composite
TWM -- double-short Russell 2000
These are marvelous vehicles for playing the short side, with 2x leverage, minimal transaction costs and acceptable management fees (<1%/year). Not nearly as leveraged as options, but far less transaction costs and no time premium.
There are many more double-short ETFs, but most of them trade too thinly for my taste (at least so far). For example, I'd love to be able to buy SSG (double-short semiconductor index), but it only trades about 25,000 shares a day so it's pretty much out of the question if you're buying or selling thousands of shares.
BTW, there are also double-long ETFs. For example, SSO tracks 200% of the $SPX (with no minus sign). SSO and SDS move inversely with each other; if you stack the two charts, they are virtual mirror images.
