Nvidia ETF trading rises with increased bearish activity before earnings

Nvidia ETF interest soars: Interest in leveraged exchange-traded funds (ETFs) designed for bearish positions on Nvidia (NVDA) has surged ahead of the chipmaker’s quarterly earnings, according to a Reuters report.

Nvidia, which surpassed Microsoft in June as the world’s most valuable company, notably impacts major stock indexes, making its earnings reports critical market events.

Investor anxiety about Nvidia meeting heightened earnings expectations has led to a notable increase in the number of shares in leveraged inverse ETFs, which profit from declines in Nvidia’s stock. 

Bearish vs Bullish ETFs

These bearish ETFs are engineered to provide daily returns that are twice the size of Nvidia’s losses, whereas their bullish counterparts double the daily gains.

"The rise in interest in bear ETFs reflects shifting sentiment regarding Nvidia’s future performance. As Nvidia’s volatility increases, more investors seem inclined to position themselves with bearish ETFs," Will Rhind, CEO of GraniteShares, commented.

Nvidia’s stock declined following its latest quarterly forecast, which fell short of investor expectations. Between May 21, before Nvidia’s previous earnings report, and Wednesday’s latest results, shares outstanding in the GraniteShares 2x Short NVDA Daily ETF surged by 446 per cent. 

In comparison, shares in the GraniteShares 2x Long NVDA Daily ETF increased by only 85 per cent.

The trend is even more pronounced in ETFs from REX Shares and Tuttle Capital Management. The T-Rex 2x Inverse Nvidia Daily ETF saw its shares outstanding grow tenfold since Nvidia’s May earnings release.

Nvidia, Tesla lead ETFs

While leveraged ETFs tied to other major stocks like Alphabet and Microsoft are available, those based on Nvidia and Tesla are the most prominent due to the volatility and high profile of these companies.

Scott Acheychek, COO of REX Financial, noted that new investors might be drawn to bearish ETFs due to Nvidia’s volatility and the rising expectations surrounding each earnings report. Others use these ETFs to hedge long positions or manage tax obligations.

Despite the sharp growth in bearish products, bullish ETFs still lead in size and dollar value. The GraniteShares 2x Long NVDA Daily ETF holds $6 billion in assets and has seen $2.95 billion in inflows over the past three months. Meanwhile, the 2x bearish ETF has $69 million in assets but attracted $63 million in the same period.

(With Reuters Inputs)