Betting against Junk Bond ETFs

Discussion in 'ETFs' started by fusiforme, Jan 28, 2013.

  1. If you think junk bond ETFs are likely to suffer a reverse at some point within the next few years, what is the best strategy for taking advantage of this?

    Two things I have considered:

    -purchasing the SBJ short high yield ETF.

    -purchasing jan 2015 puts on an ETF like JNK.

    Would like to hear others' ideas on this topic.
  2. 1) "S-J-B". :eek:
    2) It may be easier to merely trade the SPY or one of it's leveraged and/or inverse "cousins". :cool:
    3) A weakening economy and declining credit quality are likely to occur in unison. :D
    4) I would avoid long-dated options for liquidity sake. :)
  3. Thanks for your replies.

    So you feel there is no real advantage to an ETF like SJB then? And what are the advantages of using an inverse like SH? Increased liquidity?

    Are there any situations in which SJB would have the advantage? Today I notice SJB is up, but SH is down.
  4. Short HYG? Or buy long dated out of the money puts on it? Or are you constrained by account type so you need an inverse ETF? I'm also assuming you're betting on the absolute level of junk bond rates and not the spread over treasuries.