Strategies for Short Selling ETFs

shortsaleYesterday there was a short signal on IYT on the close. Unfortunately many brokers did not have shares available to borrow in order to get the short position off. How do you deal with such a situation?

There are a few solutions.

You can trade the inverse of the ETF. In IYT’s case, there was no inverse so therefore this couldn’t be done. But in most ETFs an inverse exists and within time more inverse ETFs will be coming to market.

If there is no 1x inverse, you trade the 2x inverse with 1/2 the dollar amount. Therefore if you wanted to short the FXI (China) and couldn’t borrow the ETF, you would go long 1/2 the dollar amount of FXP which is the 2x inverse of FXI.

Open multiple brokerage accounts. This means sprinkle money with a few brokers. You’ll use these accounts for your short selling. If your primary broker doesn’t have the ETF, you go to your secondary brokerage accounts in order to potentially get the trades off.

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