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There's A New ETF That Will Let You Bet Against People Who Are Betting Against Stocks

Jun 6, 2014, 19:32 IST

Keith Williamson / Flickr

There is a new ETF coming to market that will let investors bet that heavily shorted stocks will turn around, ETF Trends reports.

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ETF Trends reports that a new "short squeeze" fund from ETF is set to trade under the ticker 'SQZZ.' The ETF will seek to outperform the microcap Russell 2000 index, which tracks shares of smaller companies.

An ETF, or exchange traded fund, is a publicly traded fund that contains a basket of assets and trades like a stock on an exchange.

A "short squeeze" happens when a stock that is heavily shorted, or a stock investors have bet will go down in price, surges higher.

A short squeeze results because fewer shares of a company are available for purchase. Since those betting against a stock must borrow the shares, fewer shares remain for sale and can quickly get bid higher due to a lack of supply.

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This is basically what happened to shares of Herbalife last year, for instance. Prices soared to more than $70 from about $30 after Carl Icahn took a massive stake in the company following Bill Ackman's presentation December 2012 that said the company would go out of business.

Taking the opposite side of stocks that are heavily shorted is a risky, but not unpopular, strategy among traders who are betting that the principles of supply and demand will make a stock go higher.

As volatility dries up on Wall Street, this fund is yet another example of how investors can expand their "search for yield."

(ETF Trends via @ReformedBroker)

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