Issuers of leveraged Nvidia ETFs observed a significant increase in trading of bearish products
Nvidia, which in June surpassed Microsoft (MSFT.O) as the world's most valuable company, plays a dominant role in major stock indexes, making its quarterly results a crucial market even
Issuers of leveraged Nvidia ETFs observed a significant increase in trading of bearish products ahead of the company's earnings report. Interest in leveraged exchange-traded funds, which allow investors to profit when Nvidia (NVDA.O) shares decline, grew steadily prior to the chipmaker's quarterly results, according to data from some of the companies behind these products.
Nvidia, which in June surpassed Microsoft (MSFT.O) as the world's most valuable company, plays a dominant role in major stock indexes, making its quarterly results a crucial market event.
Investor anxiety about Nvidia's ability to meet escalating earnings expectations was evident as the number of shares outstanding in leveraged inverse ETFs, offering a bearish stance on the chipmaker, increased more rapidly in recent months than those providing leveraged bullish exposure, according to issuer data.
These bearish products are designed to deliver daily returns that are twice the magnitude of any loss in Nvidia's stock, while the bullish ETFs use derivatives to double any daily gain.
"This data reflects the changing sentiment regarding Nvidia's outlook," said Will Rhind, CEO of GraniteShares. "As Nvidia's volatility increases, there seems to be growing interest in taking a position in the bear ETF."
Nvidia's stock declined after its quarterly forecast did not meet investors' high expectations. The number of shares outstanding in the GraniteShares 2x Short NVDA Daily ETF (NVD.O) surged by 446% between May 21—just before Nvidia's previous quarterly earnings—and Wednesday, when the chipmaker released its most recent results. This compares to an 85% increase in shares outstanding for its bullish leveraged product, the GraniteShares 2x Long NVDA Daily ETF (NVDL.O).
The discrepancy is even more striking in similar ETFs issued by REX Shares and Tuttle Capital Management. The number of shares outstanding in the T-Rex 2x Inverse Nvidia Daily ETF (NVDQ.Z) has increased tenfold since Nvidia's May earnings report.
While leveraged ETFs tied to other widely traded stocks like Alphabet (GOOGL.O) and Microsoft also exist, the largest and most active are those based on Nvidia and Tesla (TSLA.O), reflecting the high profile and volatility of both companies' shares.
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