As global financial markets pulled back Monday on threats from China to US artificial intelligence companies, ETFs offering leveraged and inverse exposure to high-flying tech stocks presented a live-fire exercise for active traders.
While shares of AI poster child Nvidia Corp. fell 16% Monday afternoon on worries upstart Chinese competitor DeepSeek will grab AI market share from domestic chipmakers, exchange-traded funds offering single-stock leveraged exposure to Nvidia magnified market turbulence.
The T-Rex 2 X Long Nvidia Daily Target ETF (NVDX) fell by more than 30%, highlighting the painful side of leveraged bets.
“This is why we do this, because this is the kind of volatility traders want,” said Matthew Tuttle, founder of Tuttle Capital Management in Riverside, Connecticut.
The flip side of that trade is illustrated by the 25% rally Monday by the Tradr 1.5X Short NVDA Daily ETF (NVDS), which rises as NVDA falls. Before today it had dropped 78% over the past year.
Tuttle, through a partnership with Rex Shares, last year filed to launch dozens of single-stock ETFs to capitalize on the growing demand for ways to leverage and bet against popular stocks. But multiple ETF issuers are jumping on the single-stock ETF bandwagon to capitalize on demand among active traders.
While using options to leverage or bet against a single stock is possible, the ETFs make doing so easy and let traders place bets during pre-market and after-market trading.
Single-stock ETFs, which have only been around since July 2022, are designed to be held for no longer than a few days because the leveraged or inverse exposure typically resets daily.
For the most aggressive traders, this kind of volatility concentrated in a specific sector is ideal and can lead to even higher levels of speculation.
Tuttle said investors added $5 million to NVDX in pre-market trading on Monday even as the ETF was tanking.
“People were buying the dip,” he said. “When something is down big, we tend to get buyers and when something is up big, we tend to get sellers.”
Today may not be the last investors hear of DeepSeek and threats to AI, Tuttle said.
“Typically, when you see a selloff like this it’s not a one-day event, and the wild card is nobody is sure about this DeepSeek thing,” he said. “It’s times like these where lots of money can be made because it’s either the start of a massive correction, or it’s the buy of the century.”