Trading in Nvidia ETFs shows traders preparing for upbeat earnings

By Suzanne McGee

(Reuters) - Trading volumes in leveraged ETFs tied to Nvidia on Tuesday showed many traders anticipate yet another upside earnings surprise and bullish outlook when the chipmaker reports quarterly results after the bell.

In August, Nvidia stock soared to all-time highs after the company reported quarterly results.

"Today is the second-highest trading day in terms of volume we've seen so far, and it's not over yet," said Scott Acheychek, CEO of Rex Shares, referring to trading activity in the T-Rex 2x Long NVIDIA Daily Target ETF

Leveraged "bull" single-stock ETFs offer speculators a way to bet that the price of the underlying equity will rise over the course of a trading day; their inverse counterparts provide a chance to profit from any decline. Approved in July 2022, some of these have become a method for day traders to place short-term bets in which they have high conviction.

Tuesday's trading in the T-Rex NVDX reflects underlying optimism that Nvidia will deliver another blockbuster earnings report after the market close. Although its price has fallen, reflecting the decline in Nvidia's shares, trading volume has soared to 86 million shares, compared with an average of 26 million.

Meanwhile, although the bearish counterpart is performing well in response to the slump in the ETF price, traders' relative lack of interest can be seen in trading volume of only 5 million shares. The average has been about 14 million shares.

Direxion has seen an uptick in interest and trading activity in both its Direxion Daily NVDA Bull 1.5x Shares ETF and the Direxion Daily NVDA Bear 1x Shares ETF, said Ed Egilinsky, managing director at the firm.

Monday's trading volume in NVDU was the highest recorded since the fund's launch in September, and Egilinsky said he believes the momentum might mean that Tuesday's activity "might eclipse yesterday's high."

Although Nvidia will not report results until after New York markets close at 4 p.m. EST, traders with positions in these ETFs can trade in the after-hours market. That means that if - as they hope - the response to the earnings announcement is another boost in Nvidia's stock, they could close out their positions in the leveraged ETFs overnight with a profit.

These leveraged and inverse single-stock ETFs are structured to bet on a stock's daily price movements. On Wednesday morning, traders will be trading the ETFs based not on the immediate response to the earnings but on Wednesday's activity.

These bull/bear ETFs are "short-term trading tools that should be monitored daily," Egilinsky said.

Leveraged and inverse ETFs tied to Nvidia have been among the most popular sets of these products launched in the last year. At least four ETF providers have introduced them over the last 12 months as Nvidia has emerged as a volatile stock that has delivered gains.

The first to make its debut was the AXS 1.25 NVDA Bear Daily ETF.

"Even some of those who are bullish on the stock and the chips sector believe that the stock is overpriced and may have a quick pullback, and this allows them to express that view," said Greg Bassuk, CEO of AXS Investments.

"We've seen a 400% jump in average daily trading volume on the day ahead of and following Nvidia's earnings releases," he added. "Today's activity is in line with that - folks want to be prepared for buying on the rumor but for selling on the news."

(Reporting by Suzanne McGee in Providence, Rhode Island; Editing by Matthew Lewis)