Nvidia Corp (NVDA) has been making headlines, but not for the reasons it usually does. While the tech giant has historically enjoyed significant growth, its stock has recently experienced a dip. Over the past five trading days, NVDA shares have lost about 2% of their value, and in the last month, they’ve fallen by 8%. This slowdown, while temporary, has caught the attention of investors and analysts alike.
While many analysts remain bullish on Nvidia, its revenue growth has slowed from 22% in Q4 of fiscal 2024 to 15% in Q2 of fiscal 2025. This trend has led some to believe that the stock’s recent dip might be a reflection of this cooling growth.
However, Nvidia is still making strategic moves to solidify its position in the future. It recently partnered with Alibaba’s cloud-computing services unit to enhance the autonomous driving experience for several Chinese smart vehicle companies. This partnership reflects Nvidia’s commitment to leveraging the growing automotive AI market, which is projected to reach $2.99 billion by 2022, according to Grand View Research.
Despite these strategic initiatives, the options market seems to have anticipated Nvidia’s recent slowdown. Implied volatility (IV) is currently at 44.56%, indicating that the market anticipates less volatility in the future, compared to the historical volatility of 59.03%. This lower projected volatility has led to discounted premiums on options, creating an attractive opportunity for investors to buy both call and put options. This has also spurred demand for other derivative products, including leveraged ETFs.
Direxion ETFs, known for their leveraged ETFs, offer investors amplified exposure to the performance of various assets, including Nvidia. The Direxion Daily NVDA Bull 2X Shares (NVDU) aims to deliver 200% of the daily performance of Nvidia shares. On the other hand, the Direxion Daily NVDA Bear 1X Shares (NVDD) tracks the inverse performance of NVDA, offering a leveraged bearish position.
It’s important to remember that these leveraged ETFs are designed for short-term trading. Holding them for longer than a day can expose investors to volatility drag, which can erode returns due to the daily compounding effect.
The NVDU ETF has experienced remarkable performance, gaining over 220% since the beginning of the year. However, its momentum has slowed in recent months, with only a 21.5% gain in the past six months. The ETF is currently trading between its 50-day and 200-day moving averages, which could suggest a bullish pennant formation.
The NVDD ETF, designed to provide inverse exposure to NVDA, has struggled since the beginning of the year, losing 66% in value. While not the most compelling opportunity, it has shown signs of recent improvement, with a 6% gain in the past month. However, it faces challenges as it trades below its 50 and 200 DMAs. The inverse ETF has consistently bounced off the horizontal support line at the $7.50 level, presenting a potentially intriguing opportunity for bearish investors.
The recent slowdown in Nvidia’s stock performance has opened up opportunities for investors looking for leveraged exposure. While these ETFs offer amplified returns, they also come with increased risk, particularly for those who hold them for extended periods. Investors should carefully consider their risk tolerance and investment horizon before investing in these products.
