The Nvidia Conundrum
Nvidia Corp NVDA has grabbed headlines recently, but perhaps not for the reasons investors hoped. The once-golden stock, known for its cutting-edge graphics processors crucial for AI, has hit a bump in the road. Over the past five trading days, NVDA shares shed about 2%, marking an 8% loss in the trailing month alone.
Despite receiving a “Buy” rating from most of the 37 analysts covering it, Nvidia’s growth trajectory has tapered off. Revenue growth dropped from 22% in Q4 of fiscal 2024 to 15% in Q2 of fiscal 2025, signaling a potential slowdown.
However, amidst this downturn, Nvidia ventured into a strategic partnership with Alibaba Group Holding’s BABA cloud computing arm to enhance the autonomous driving experience for Chinese smart vehicle firms. This move aligns with the booming global automotive AI market valued at $2.99 billion in 2022.
The Derivatives Dynamic
The options market has adjusted to NVDA’s deceleration, evident in the drop in implied volatility (IV) to 44.56%. In contrast, historical volatility stands higher at 59.03%. The dip in IV points to subdued volatility projections, a factor that can influence option premiums and attract traders looking to capitalize on NVDA’s movements.
With the expectations of lower volatility, interest in derivative products like leveraged ETFs could surge as traders explore various investment strategies.
The Direxion Duo
The Direxion Daily NVDA Bull 2X Shares NVDU and The Direxion Daily NVDA Bear 1X Shares NVDD offered by Direxion are tailored to amplify returns on NVDA or capitalize on its downward movements, respectively.
Both funds come with a crucial caveat – they are designed for daily exposure only. Ignoring this could expose investors to volatility drag, eroding potential returns due to daily compounding effects.
Unpacking NVDU and NVDD
The NVDU ETF has been a star performer, gaining over 220% since the year began. Despite recent slower momentum, with a 21.5% increase in the past six months, the ETF remains an enticing option for speculators.
- Currently stagnating between the 50-day and 200-day moving averages, a potential bullish pennant formation might be on the horizon.
The NVDD ETF, inversely, has struggled, losing 66% since January.
- However, a recent uptick with a 6% rise in the past month poses a fascinating turn of events for the bearish NVDD fund.
- With challenges ahead, bouncing off the $7.50 support level adds a layer of intrigue for pessimistic traders.
Featured photo by Jordan Harrison from Pexels.