Day traders who have been benefiting from the AI-driven stock market frenzy have been reaping significant profits week after week. However, a group of retail investors who heavily invested in a leveraged ETF are now facing substantial losses amounting to $400 billion due to the drop in Nvidia Corp’s stock value.
The GraniteShares 2x Long NVDA Daily ETF (NVDL), which provides double the daily return of Nvidia, saw a massive influx of $743 million last week in an attempt to maximize gains from the company. Unfortunately, the fund has decreased by 22% since Tuesday, although it is still up by 340% in 2024.
Dave Lutz, director of ETF at Jones Trading, warned about the high-risk nature of accumulating leveraged positions in Nvidia, emphasizing the importance of understanding the products’ structure and associated risks. Last week’s rush to invest in the ETF highlights the volatile nature of high-octane ETFs, which can lead to substantial losses as well as significant profits due to their derivative-driven performance amplification.
Since its launch in December 2022, the $3.8 billion ETF has attracted around $1.8 billion in 2024 alone, reflecting the growing interest in high-risk investment strategies among retail investors. Nvidia’s AI-driven ascent has seen the chipmaker become the second-largest holding in the $70 billion Technology Select Sector SPDR Fund, comprising over 20% of the technology ETF.
On the other hand, bears betting against Nvidia have suffered losses this year, particularly with the GraniteShares 2x Short NVDA Daily ETF (NVD) diminishing by nearly 90%. Despite its remarkable performance, Nvidia’s stock has recently entered correction territory after a sharp sell-off, halting its rapid growth.
Analysts like Jane Edmondson from TMX VettaFi believe that Nvidia and its AI counterparts were overdue for a correction following their impressive rally. Investors are likely taking profits towards the end of the quarter and realigning their portfolios, but the fundamental strength of Nvidia remains intact, indicating a potential rebound in the future.
Overall, the recent events in the stock market emphasize the importance of understanding the risks associated with leveraged ETFs and the volatile nature of investing in high-growth stocks driven by AI technologies like Nvidia. Retail investors need to be cautious and well-informed to navigate the complexities of these fast-paced markets effectively.
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https://finance.yahoo.com/news/wrong-way-leveraged-nvidia-bet-190838893.html