NVIDIA sparks leveraged ETF frenzy, double long fund soars 450% in a year

NVIDIA (NVDA.US)'s latest craze is not only causing a stir among retail investors, but also sparking an unprecedented boom in the leveraged ETF industry. According to the Securities Times, GraniteShares Fund has provided investors with the GraniteShares 2x Long NVDA Daily ETF (NVDL), which has seen an astonishing 450% increase in the past year, with trading volume reaching a record high of $4.7 billion last week. The fund was launched in December 2022 and currently has assets under management of $2.8 billion. At the same time, the GraniteShares 2x Short NVDA Daily ETF (NVD), which tracks the stock for shorting, has fallen by 86% this year, demonstrating strong market confidence in NVIDIA.

As a representative of the "most important stock" globally, NVIDIA's stock price hit a historic high of $1,100 per share on Tuesday, with trading volume doubling the 20-day average. This phenomenon is not being driven by NVIDIA's earnings reports, but rather by the so-called gamma squeeze effect, further driving the market up.

Thousands of expiring call options suddenly surged by 1000% or more as the stock price opened significantly higher, forcing options traders who sold these contracts to adjust their hedges by buying more shares. This buying behavior created a positive feedback loop, further boosting the stock price.

With market speculation running high, ETF creators like GraniteShares are preparing to launch a series of new options strategies covering a variety of assets from gold, large tech companies to bitcoin. NVIDIA is becoming the new darling of tech stock investors, with its strong performance similar to Tesla's surge at the end of 2021, when Tesla's stock price also experienced a parabolic rise.

It is worth mentioning that NVIDIA's rise has been driven by Elon Musk, especially after the artificial intelligence craze sparked by his challenge to OpenAI, which has added momentum to NVIDIA's rise. The post-earnings surge has increased the chipmaker's market value by approximately $470 billionGraniteShares CEO Will Rhind said: "Three years ago, we were talking about Tesla, but now the entire conversation is dominated by NVIDIA. NVIDIA is undoubtedly the most important stock in the world right now, and we have built an ecosystem around it."

According to Bloomberg industry research data, leveraged funds have accumulated $11 billion in inflows this year, on track to match last year's $20 billion. As investors seek new investment tools to bet on the biggest themes in the market, there is an increased demand for these funds. However, leveraged funds have also faced some criticism due to their high risk, especially as retail traders are often considered less sophisticated than institutional traders.

GraniteShares has applied for at least 25 ETFs to track the performance of other single-stock ETFs with daily 2x and 3x leverage strategies. Rhind emphasized: "We are offering the public leverage priced by institutions, which is a significant breakthrough. But leverage comes with risks, and these products are not without risk."

Further data shows that hedge funds have reached a historical high in exposure to U.S. tech giants. According to data from Goldman Sachs' institutional brokerage firm, after NVIDIA announced better-than-expected earnings, the so-called "Magnificent Seven" - NVIDIA, Apple (AAPL.US), Amazon (AMZN.US), Meta (META.US), Alphabet (GOOGL.US), Tesla (TSLA.US), and Microsoft (MSFT.US) - currently account for approximately 20.7% of hedge funds' net exposure to U.S. single stocks. This data further confirms NVIDIA's position in the minds of tech stock investors and its importance in the current market environment