A Potential Calm Before The Storm Could Draw Intrigue In Direxion's NVDU And NVDD Funds

Nvidia Corp NVDA has been in the news lately. However, it was not for what it did but for what it didn't do. Unlike prior sessions when the technology juggernaut – whose advanced graphics processors are critical for artificial intelligence – seemingly enjoyed no upside limits, NVDA stock has recently lost some of its shine. In the past five business days, shares have lost about 2% of equity value.

In the trailing month, NVDA stock finds itself below parity to the tune of 8%. Part of the reason could come down to temporary exhaustion. While the majority of the 37 analysts covering Nvidia in the past four months have rated the equity a "Buy," the tech giant is noticeably losing steam. For example, quarter-to-quarter revenue growth has declined from 22% in Q4 of fiscal 2024 to 15% in Q2 of fiscal 2025.

That's not to say that NVDA stock is devoid of opportunity. Recently, Nvidia partnered with Alibaba Group Holding's BABA cloud-computing services unit to help augment the autonomous driving experience for several of China's smart vehicle enterprises. According to Grand View Research, the global automotive AI market reached a valuation of $2.99 billion in 2022.

Nevertheless, the options market seems to have priced in the recent slowdown in NVDA stock, with implied volatility (IV) currently sitting at 44.56%. In contrast, historical volatility clocks in at 59.03%. Notably, as Benzinga's Aniket Verma mentioned, early in September, IV stood at 55%. Stated differently, the derivatives arena is anticipating lower-than-normal volatility.

Significantly, when the market projects lower magnitude of movement, the premiums on options become relatively discounted. Therefore, an incentive exists to buy both call and put options, presenting an intriguing framework for exchange-traded funds. As more traders speculate on NVDA options, demand for other derivative products – including leveraged ETFs – may rise.

The Direxion ETFs: One of the key providers of financial products, Direxion forged a strong reputation over the past several years through its leveraged ETFs. Using a variety of instruments such as swaps and futures contracts, the company is able to provide an extra kick to its basket of securities.

The Direxion Daily NVDA Bull 2X Shares NVDU focuses specifically on NVDA stock. Primarily, the attribute for NVDU is its upside potential, which aims for 200% of the daily performance of Nvidia shares. On the other end of the scale, the Direxion Daily NVDA Bear 1X Shares NVDD aims for 100% of the inverse performance of NVDA.

Whichever fund investors choose, they must be aware of an important caveat: neither ETF is designed for exposure lasting longer than one day. Those that ignore this guidance risk incurring volatility drag (or decay). This phenomenon refers to the erosion of returns due to the daily compounding effect.

The NVDU ETF: Since the beginning of the year, the NVDU ETF gained more than 220%, a remarkable performance that continues to tempt would-be speculators.

Although a popular leveraged fund, NVDU's momentum has slowed significantly, gaining "only" 21.5% in the past six months.
Currently, the ETF is sandwiched between the 50-day moving average at top and the 200 DMA below.
It's possible that from April of this year onward, the market may be charting a bullish pennant formation.

The NVDD ETF: In sharp contrast to NVDU's good fortunes, the inverse NVDD fund has struggled, losing 66% since the beginning of January.

While not the most compelling opportunity, NVDD has started to look interesting recently, with the inverse ETF rising over 6% in the past month.
Nevertheless, a significant challenge awaits the bears, with NVDD finding itself below its 50 and 200 DMAs.
The inverse fund has consistently bounced off the horizontal support line represented by the $7.50 level, raising intrigue for the pessimistic case.