The artificial intelligence boom has fueled one of the strongest bull markets in recent memory, but it has also prompted some analysts to draw comparisons to the late stages of the dot-com bubble.
Today’s leading technology companies are still generating substantial earnings. The concern, however, is that earnings growth is not the same thing as free cash flow generation, particularly when companies are engaged in one of the largest capital spending cycles in corporate history.
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According to CNBC, cumulative AI-related spending from the Magnificent Seven technology companies is expected to approach $700 billion for 2026. That spending has already begun weighing on free cash flow. Amazon.com Inc. (ticker: AMZN), for example, is expected to generate negative free cash flow of $17 billion, according to Morgan Stanley estimates.
Big Tech is well aware of the scale of the investment required and has already begun raising capital to support it. Alphabet Inc. (GOOG, GOOGL) recently announced an $80 billion equity capital raise tied to its AI ambitions, while Nvidia Corp. (NVDA) plans to raise approximately $20 billion through an investment-grade corporate bond offering. Yet despite the unprecedented spending, meaningful evidence that AI investments are generating proportional economic returns remains limited.
Valuations are adding to investor concerns. One closely watched measure is the cyclically adjusted price-to-earnings ratio, or CAPE. As of late June, the CAPE ratio stood at 40.9, approaching the highest reading in history. The only higher reading occurred in December 1999, when the ratio reached 44.2. For context, the long-term average CAPE ratio is 17.4, while the historical median is 16.1.
While no metric can predict the exact timing of a market correction, the combination of elevated valuations, aggressive capital spending and uncertain AI monetization has prompted some investors to adopt a more defensive stance with their portfolios.
That being said, investors concerned about these risks do not necessarily need to follow prominent short sellers such as Michael Burry and bet against the market. In many cases, it may make more sense to remain invested while allocating a portion of a portfolio towards a hedge.
“Hedging against a crash usually fails on timing, not on the hedge itself,” explains Matt Kaufman, senior vice president and global head of ETFs at Calamos Investments. “Many investors de-risk too late and then have to contend with the other half of the decision, which is when to get back in.”
Here are seven of the best exchange-traded funds, or ETFs, to hedge against a potential stock market crash:
| ETF | Expense Ratio |
| Alpha Architect Tail Risk ETF (CAOS) | 0.63% |
| Fidelity Hedged Equity ETF (FHEQ) | 0.48% |
| ProShares VIX Short-Term Futures ETF (VIXY) | 0.85% |
| ProShares UltraPro Short QQQ (SQQQ) | 0.95% |
| Calamos Laddered S&P 500 Structured Alt Protection ETF (CPSL) | 0.79% |
| Calamos Laddered Bitcoin Structured Alt Protection ETF (CBOL) | 0.79% |
| State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) | 0.1353% |
Alpha Architect Tail Risk ETF (CAOS)
Tail risk refers to the possibility of rare but severe market events that sit on the extreme ends of a normal return distribution. One of the biggest challenges with tail-risk hedging is that when those events fail to occur, investors can steadily lose money, much like paying insurance premiums year after year without ever filing a claim. More sophisticated ETFs attempt to reduce that drag, and CAOS is one example.
The fund combines a strategic allocation to S&P 500 put options with financing from put spreads and box spreads. Despite its relatively high 0.63% expense ratio, CAOS has historically maintained positive long-term price appreciation while simultaneously providing meaningful protection during periods of market stress, such as the COVID-19 pandemic and the April 2025 “Liberation Day” tariff sell-off.
Fidelity Hedged Equity ETF (FHEQ)
A put option gives its owner the right, but not the obligation, to sell an asset at a predetermined price. Investors buy put options as a form of downside protection, but that protection comes at a cost, both from the upfront premium paid and the option gradually losing value as expiration approaches. Some ETFs address this challenge through laddered hedging programs, and FHEQ is one example.
The fund combines an actively managed portfolio with sector characteristics similar to the S&P 500 and a ladder of put options that provide convexity, meaning losses can accelerate in the investor’s favor during a sharp market decline. The trade-off is that in strong bull markets, FHEQ may lag broader equities due to its 0.48% expense ratio, a lower 0.55% 30-day SEC yield and the ongoing cost of maintaining the hedge.
ProShares VIX Short-Term Futures ETF (VIXY)
The CBOE Volatility Index (VIX) measures the market’s expectation of future volatility using S&P 500 put and call option prices. When investors rush to buy downside protection during periods of fear, option prices rise and the VIX typically spikes alongside market sell-offs. Investors cannot buy the VIX directly, but they can gain exposure through futures-based products such as VIXY.
VIXY currently holds July and August 2026 VIX futures contracts. When volatility declines, VIXY will generally lose value as its futures positions roll forward. During sharp market sell-offs, however, the fund can exhibit powerful convexity as volatility surges and futures prices rise. That potential downside protection comes with significant costs, including a relatively high 0.85% expense ratio.
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ProShares UltraPro Short QQQ (SQQQ)
Some ETFs are specifically designed to profit when major market benchmarks decline, and SQQQ is one of the most well-known examples. The fund seeks to deliver three times the inverse daily performance of the Nasdaq-100 index, meaning a 1% decline in the benchmark on a given day should translate into roughly a 3% daily gain for SQQQ before fees and tracking differences.
However, SQQQ is generally not recommended as a long-term holding. The Nasdaq-100 has appreciated significantly over time, causing the ETF’s value to steadily erode, while its daily leverage reset means longer-term returns can diverge substantially from the advertised negative three-times index exposure. Investors must also contend with a relatively high 0.95% net expense ratio that adds extra drag.
Calamos Laddered S&P 500 Structured Alt Protection ETF (CPSL)
“The idea behind CPSL is to take timing decisions off the table,” Kaufman says. “It holds a laddered portfolio of our 100% downside-protected S&P 500 ETFs spanning all 12 monthly outcome periods, so an investor maintains protection that is continuously in place and rolling.” CPSL charges a 0.79% expense ratio and remains fairly liquid for an alternative ETF, with a 0.1% 30-day median bid-ask spread.
“The cost of that full protection is a limit on the upside — you give up some gains in exchange for taking the downside off the table,” Kaufman explains. On Calamos’ website, investors can find metrics showing how much upside participation each of the 12 underlying ETFs in CPSL has left. However, investors can also buy CPSL’s individual monthly structured alt protection S&P 500 ETFs directly if desired.
Calamos Laddered Bitcoin Structured Alt Protection ETF (CBOL)
Equity markets may not have crashed over the past year, but Bitcoin certainly has, falling roughly 45% over the period. In contrast, CBOL has remained comparatively resilient. The fund employs the same laddered fund-of-funds, 100%-downside-protection approach used by CPSL, but applies it to Bitcoin-linked exposure instead of the S&P 500. CBOL charges the same 0.79% expense ratio as CPSL.
“The limitation of any single option collar is that it commits you to one outcome period — one floor, one cap, one reset date — so the result depends heavily on when you buy,” Kaufman explains. “CPSL and CBOL address that by laddering 12 monthly ETFs and rebalancing to keep them equally weighted — that is what smooths out the hardest decision in hedging, which is when to put the protection on.”
State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
Investors who prefer to avoid complex hedging strategies and higher fees may find value in simply allocating a portion of their portfolio to cash equivalents. BIL provides exposure to short-term U.S. Treasury bills and currently offers a competitive 3.5% 30-day SEC yield after deducting a 0.1353% expense ratio. The ETF has low price volatility and minimal sensitivity to interest rate changes.
“In 10 of the worst monthly returns for S&P 500 over the last 20 years, one to three-month U.S. Treasury bills averaged a 0.1% return versus an average 10% loss for the S&P 500 index,” explains Matthew Bartolini, managing director and global head of research strategists at State Street Investment Management. BIL is also very liquid thanks to a low 0.01% 30-day median bid-ask spread.
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7 ETFs to Hedge Against a Stock Market Crash originally appeared on usnews.com
Update 06/25/26: This story was published at an earlier date and has been updated with new information.
