Introduction to Shorting FAANG Stocks

When considering shorting FAANG stocks (Facebook, Amazon, Apple, Netflix, and Alphabet), traders have a variety of options. Some choose to employ inverse ETFs, while others might opt for direct short sales through their brokerage accounts. Each method has its unique advantages and challenges. This article aims to provide insights into the best inverse ETFs for shorting FAANG stocks, along with advice on why and when a direct short sale might be preferable.

The Best Inverse ETFs for Shorting FAANG Stocks

For those seeking a more passive approach to shorting FAANG stocks, several inverse ETFs are available. Among the most popular are:

ProShares Short FANG (FAZ): This ETF is designed to reflect the inverse performance of the NASDAQ-100 FANG Index. Whether or not it achieves this goal consistently is a topic of debate among traders. Direxion Daily Technology Bear 3X Shares (TECS): This triple-short ETF is intended to offer three times the inverse daily performance of the NASDAQ-100 Technology Index. ProShares UltraShort QQQ (QID): Aimed at investors wanting to outperform declines in the QQQ index, which tracks the Nasdaq-100. Direxion Daily SP Biotech Bear 3X Shares (LABD): Not directly related to FAANG stocks, but serves as another example of a highly leveraged bear ETF.

Direct Shorting: An Alternate Path

Alternatively, traders can opt for direct shorting of FAANG stocks, which involves opening individual short positions in each stock. This approach offers several advantages:

Control Over the Trade: Direct shorting allows traders to manage their exposure and exit strategy more precisely. Avoiding ETF Market Issues: Inverse ETFs are subject to market inefficiencies and potential non-collectability during market crashes, as mentioned by a veteran trader. Investment in Broader Indicators: For traders who prefer not to focus on individual stocks, shorting the SP 500 or a broader tech index might offer a more diversified approach.

Why Not Use Inverse ETFs for FAANG?

Several reasons make inverse ETFs a less attractive option for shorting FAANG stocks:

Market Efficiency Issues: Inverse ETFs are often quoted at a premium or discount, which can affect trading costs and outcomes. Daily Resetting: Inverse ETFs reset their value daily, which can lead to performance discrepancies from their stated goals. Deterioration of Value Over Time: Over extended periods, inverse ETFs can deviate significantly from the inverse performance of the underlying index.

Recommendations for Trading FAANG Stocks

Based on experience and advice from seasoned traders, several recommendations can guide investors when considering FAANG stocks:

Professional Brokerage Accounts: Use reputable and secure brokerage platforms that offer robust short selling features, such as Interactive Brokers. Understand Market Dynamics: Stay updated on market trends and economic indicators that can impact FAANG stocks. Diversification: Diversify your portfolio across various sectors and assets to mitigate risks.

Conclusion

While inverse ETFs can be a tempting tool for shorting FAANG stocks, they come with inherent risks and limitations. Direct shorting of individual stocks or broader market indicators might offer a more reliable and controlled approach. As always, thorough research and risk management are key to successful trading.