Nvidia stock plunge sparks divergent ETF performance

Two leveraged exchange-traded funds tracking NVIDIA’s performance demonstrated contrasting outcomes in response to the stock’s drop. The T-Rex 2X Long NVIDIA Daily Target ETF (CBOE:NVDX), designed to reflect twice NVIDIA’s daily return, fell by 8.99% to $10.43. Conversely, the GraniteShares 2x Short NVDA Daily ETF (NASDAQ:NVD), which aims to deliver twice the inverse of NVIDIA’s daily return, increased by 9.03% to $6.40. Both prices were recorded at 4:05 p.m. ET.

The performance of these ETFs highlights the complexities of leveraged investing. Since October 13, when NVIDIA closed at $228.52, the stock has fallen approximately 27.28%, reaching a near 52-week low of $163.90. While NVDX’s losses were less than double this decline, NVD’s gains significantly exceeded it.

This discrepancy stems from the daily reset mechanism of these funds. Each fund rebalances daily to achieve the target 2x or -2x return, leading to compounding effects. During a sustained downtrend, losses accumulate on a shrinking base for long ETFs like NVDX, while gains build on a growing base for short ETFs like NVD.

These leveraged funds are intended for short-term trading and are not suitable for long-term holding. High expense ratios, with NVDX at 1.05% and NVD at 1.42%, further erode returns. The volatility of NVIDIA, with a beta of 2.247, amplifies the risk, as a single significant downturn can substantially diminish a leveraged fund’s value.

While most retirement savers experienced the selloff through broader market vehicles like S&P 500 funds, NVIDIA’s significant weighting in technology-heavy portfolios still resulted in a noticeable impact. Leveraged single-stock funds, however, magnify both gains and losses.

NVIDIA is scheduled to release its third-quarter fiscal 2027 earnings on Tuesday, November 17, and Huang is expected to testify before Congress before Thanksgiving. These events could trigger further volatility and impact leveraged fund performance.