Surge in Bearish Leveraged ETFs Signals Growing Anxiety Over Nvidia's Market Performance
By Suzanne McGee
(Multibagger) - Interest in leveraged exchange-traded funds (ETFs) that profit when Nvidia (NASDAQ: NVDA) shares decline has surged, reflecting investor apprehension surrounding the chipmaker's recent quarterly earnings report. This trend is evident from the latest data provided by ETF issuers.
Nvidia, having surpassed Microsoft (NASDAQ: MSFT) in June to become the world's most valuable company, wields significant influence over major stock indexes. Consequently, its quarterly earnings announcements have become crucial market events.
Investor anxiety about Nvidia meeting soaring earnings expectations is palpable. The shares outstanding in leveraged inverse ETFs, which offer bearish positions on Nvidia, have grown more rapidly than those in bullish leveraged ETFs. These bearish ETFs aim for daily returns twice the size of any decline in Nvidia’s stock, whereas bullish ETFs leverage derivatives to double any daily gains.
"You can read into that data the changing sentiment about Nvidia's outlook," stated Will Rhind, CEO of GraniteShares. "As Nvidia becomes more volatile, we seem to be witnessing greater interest in taking a position in the bear ETF."
Following Nvidia's recent quarterly forecast, which fell short of lofty investor expectations, its stock experienced a drop. Between May 21 and the latest earnings release, shares outstanding in the GraniteShares 2x Short NVDA Daily ETF soared by 446%. In contrast, the shares outstanding in the GraniteShares 2x Long NVDA Daily ETF increased by only 85%.
The trend is even more pronounced 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 has increased tenfold since Nvidia's May earnings report.
While leveraged ETFs connected to other high-profile stocks like Alphabet (NASDAQ: GOOGL) and Microsoft exist, Nvidia and Tesla (NASDAQ: TSLA) dominate the leveraged ETF market due to their high profile and share volatility.
Scott Acheychek, Chief Operating Officer of REX Financial, noted that new investors gravitating towards leveraged bearish ETFs might be concerned about Nvidia's volatility as each earnings report raises expectations. Others might use these ETFs to hedge their long positions or manage tax obligations.
Despite the rapid growth of bearish ETFs, bullish products still dominate in terms of size and growth. The GraniteShares 2x Long NVDA Daily ETF boasts $6 billion in assets and has seen inflows of $2.95 billion over the past three months. Comparatively, its 2x bearish counterpart holds $69 million in assets, with $63 million in inflows during the same period.
Breaking It Down: What This Means for You
What is this about?
This article discusses the increasing interest in leveraged ETFs, particularly those that profit from Nvidia's stock falling. Leveraged ETFs amplify the daily gains or losses of a stock, making them high-risk, high-reward investment tools.
Why should you care?
Nvidia is a major player in the tech industry, and its stock performance can significantly impact the market. The growing interest in bearish ETFs suggests that investors are becoming cautious about Nvidia's future performance, which could indicate broader market volatility.
How can this affect your finances?
If you invest in tech stocks or ETFs, understanding the sentiment around major companies like Nvidia can help you make more informed decisions. The rise in bearish leveraged ETFs could be a signal to reassess your portfolio and consider hedging strategies to protect against potential downturns.
By keeping an eye on these market signals, you can better navigate the complexities of investing and safeguard your financial well-being.