U.S. stocks — particularly the large-cap, growth-heavy names in the S&P 500 index — appear increasingly overvalued. Some investors are responding by taking profits or shifting into lower-valuation markets such as international stocks or beaten-down sectors. But more active traders may find bearish strategies more appealing at these levels.
Traditionally, this means short selling, which involves borrowing a security, selling it at the current price, and hoping to buy it back later at a lower price. But shorting comes with significant risks, including borrowing costs that vary by stock and the possibility of a margin call if the position moves against you.
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Alternatively, some investors buy put options, which increase in value when the underlying asset falls. However, options involve complexities of their own. Each day, a put option loses time value, which accelerates as expiration approaches. Moreover, price declines alone don’t guarantee linear profits, as factors like implied volatility also impact returns.
For many investors, a simpler way to express a bearish view is through inverse exchange-traded funds (ETFs). These funds don’t hold stocks or bonds directly. Instead, they use derivatives such as swaps to deliver returns that are the inverse of a given index, sector or stock.
“Inverse ETFs are exchange-traded funds that utilize derivative contracts to generate profits when the value of an underlying asset or market index experiences a decline,” says Sean August, CEO of The August Wealth Management Group. “These ETFs are specifically structured to exhibit an inverse relationship with the benchmark they track, which enables investors to benefit from falling prices.”
For example, an inverse ETF targeting twice the daily inverse of the S&P 500 would rise 2% on a day when the index falls 1%. Just like any other stock, you can buy shares of an inverse ETF through a brokerage without needing margin or options approval. Your losses are limited to what you invest.
“Inverse ETFs are built for short-term tactical trading and require close daily monitoring because as well as boosting gains, losses are amplified as well,” explains Mo Sparks, chief product officer at Direxion. “That’s why they’re best suited for experienced traders.”
However, these funds come with tradeoffs. Most are designed to deliver their inverse return for a single day only. Over longer periods, especially in volatile markets, compounding effects can cause performance to drift away from the expected inverse result.
“Tracking-error risk can arise from potential deviations between the inverse ETF’s performance and the actual inverse return of the target index due to fees, expenses and derivative usage,” August says. “In addition, decay may occur over holding periods longer than a day, leading to amplified losses or reduced gains due to compounding effects, which is exacerbated if the inverse ETF also utilizes leverage.”
Moreover, because bull markets are more common than bear markets, the majority of inverse ETFs decline over time. Many have had to undergo reverse stock splits just to maintain minimum share prices.
Here are 10 inverse ETFs that have the potential to gain during a bear market:
| ETF | Net expense ratio |
| ProShares Short S&P500 ETF (ticker: SH) | 0.89% |
| Direxion Daily Magnificent 7 Bear 1X Shares (QQQD) | 0.50% |
| ProShares UltraPro Short Russell 2000 (SRTY) | 0.95% |
| ProShares UltraPro Short QQQ (SQQQ) | 0.95% |
| ProShares Short Bitcoin ETF (BITI) | 1.03% |
| ProShares UltraShort Industrials (SIJ) | 0.95% |
| Direxion Daily Real Estate Bear 3X Shares (DRV) | 1.06% |
| Direxion Daily Semiconductor Bear 3X Shares (SOXS) | 0.97% |
| Direxion Daily TSLA Bear 1X Shares (TSLS) | 0.94% |
| Direxion Daily PLTR Bear 1X Shares (PLTD) | 0.97% |
ProShares Short S&P500 ETF (ticker: SH)
“Inverse ETFs can hedge against market declines when combined with traditional long positions, which offers a measure of downside protection,” August says. This can help investors take risk off the table temporarily, at the cost of capped upside. SH is a relatively simple inverse ETF that’s good for learning the ropes.
This inverse ETF delivers daily performance corresponding to the direct opposite of the S&P 500’s price return. The exposure is obtained via swap agreements with a variety of large bank counterparties. SH charges a 0.89% expense ratio and is fairly liquid, with a 0.03% 30-day bid-ask spread.
Direxion Daily Magnificent 7 Bear 1X Shares (QQQD)
“Direxion’s inverse ETFs are tactical instruments that should be used with clear time frames and investment expertise,” Sparks explains. “They’re efficient, precision tools for traders with a defined thesis.” For example, investors can hedge a decline in the largest tech growth stocks via QQQD.
For a 0.5% net expense ratio, this ETF provides daily one-times daily inverse exposure to a basket of the Magnificent Seven stocks: Nvidia Corp. (NVDA), Tesla Inc. (TSLA), Microsoft Corp. (MSFT), Meta Platforms Inc. (META), Alphabet Inc. (GOOG, GOOGL) Amazon.com Inc. (AMZN) and Apple Inc. (AAPL).
ProShares UltraPro Short Russell 2000 (SRTY)
“Leveraged inverse ETFs aim to provide multiplied inverse daily returns of the target index, amplifying both upside and downside movements,” August says. “While they offer higher potential returns during market declines, they come with increased risk and compounding effects.”
Some investors may want to bet against small-cap stocks, which tend to be more domestically focused and vulnerable to trade-related policies such as tariffs. SRTY offers a way to make that bet. It seeks to deliver three times the daily inverse return of the Russell 2000 Index for a 0.95% expense ratio.
ProShares UltraPro Short QQQ (SQQQ)
The Nasdaq-100 index tracks the 100 largest non-financial stocks listed on the Nasdaq exchange, with a heavy tilt toward technology and growth companies. For investors looking to bet against this high-flying market segment, SQQQ offers three times the daily inverse return of the index.
Because the Nasdaq-100 is a high-beta benchmark, meaning it tends to swing more than the broader market, its declines can be sharper during downturns. SQQQ magnifies those moves, making it especially volatile. For traders seeking even more amplified exposure, SQQQ also has a liquid options market.
ProShares Short Bitcoin ETF (BITI)
Bitcoin recently hit a new all-time high above $120,000, but the cryptocurrency has a history of deep and prolonged drawdowns, with past declines exceeding 80%. For those looking to hedge or speculate on a pullback, BITI offers an alternative to shorting on a crypto exchange or trading Bitcoin futures directly.
BITI is not leveraged. It seeks to deliver a daily return that’s the direct inverse of the Bloomberg Bitcoin Index. Unlike most inverse ETFs that rely on swaps, BITI achieves its exposure by shorting CME-traded Bitcoin futures, which are exchange-traded, standardized derivatives. The ETF charges a 1.03% expense ratio.
[READ: Inverse ETFs: What They Are and How to Invest In Them.]
ProShares UltraShort Industrials (SIJ)
Tariffs can raise input costs and disrupt global supply chains, both of which pose challenges for industrial companies that rely on international trade and manufacturing. SIJ provides a way to hedge or profit from that risk. The fund offers twice the daily inverse return of the S&P 500 industrial sector stocks.
“Sector-specific inverse ETFs allow investors to express bearish views or hedge against downside risks in a specific sector,” August explains. In addition to SIJ, investors can find leveraged and unleveraged inverse ETFs corresponding to other stock market sectors in ProShares’ inverse ETF lineup.
Direxion Daily Real Estate Bear 3X Shares (DRV)
Michael Burry rose to fame for shorting the U.S. housing market ahead of the 2008 financial crisis, using bespoke credit default swaps to make his bet. Today, retail investors can express a similar bearish view on real estate with DRV, which, unlike Burry’s credit default swaps, is exchange-traded and more liquid.
DRV seeks to deliver three times the daily inverse return of the Real Estate Select Sector Index, which includes both real estate investment trusts (REITs) as well as real estate services companies pulled from the S&P 500. The ETF charges a 1.06% expense ratio and also has a long-biased counterpart.
Direxion Daily Semiconductor Bear 3X Shares (SOXS)
“One area of recent interest is semiconductors, and SOXS, our flagship inverse ETF with over $1.3 billion in assets, provides three times inverse exposure to the NYSE Semiconductor Index,” Sparks says. “That index has risen almost 60% since April on AI-fueled enthusiasm and strong earnings.”
Trading SOXS saves investors the trouble of selecting the right put options to buy or selling short hotly traded and expensive-to-borrow semiconductor stocks. “For traders who feel this rapid semiconductor rally is fading and expect price consolidation, SOXS is the product for them,” Sparks says.
Direxion Daily TSLA Bear 1X Shares (TSLS)
Inverse ETFs are now available for a range of individual stocks, including many of the market’s most closely watched tech names. TSLS offers the daily inverse return of Tesla stock, allowing investors to bet against shares without short selling or buying put options. The ETF charges a 0.94% expense ratio.
“With earnings approaching, sales declining and recent senior departures raising questions about leadership stability — not to mention the continually polarizing Elon Musk at the helm of the company — traders can express a bearish view on Tesla stock with TSLS,” Sparks says.
Direxion Daily PLTR Bear 1X Shares (PLTD)
Palantir Technologies Inc. (PLTR) builds data analytics software used by government agencies for intelligence and operational planning. The stock has surged 437% over the past year. But with shares now trading at more than 260 times forward earnings and 120 times sales, some traders are turning bearish.
PLTD offers a way to bet against Palantir’s continued rise. The inverse ETF delivers one times the daily inverse return of PLTR, avoiding the complexity of short selling or put options. However, that convenience comes with a 0.97% expense ratio and the usual issues with prolonged holding.
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10 Inverse ETFs That Gain in a Bear Market originally appeared on usnews.com
Update 07/23/25: This story was previously published at an earlier date and has been updated with new information.
