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Oh, you thought earnings season was over?
Did you forget that Nvidia (NVDA) reports a couple of weeks after the other big guys? This Wednesday, Aug. 27, the king of artificial intelligence, a stock comprising nearly a twelfth of the entire S&P 500 Index ($SPX) by itself, and around 10% of the Nasdaq-100 ($IUXX), is up to bat.
And based on how the market appears stretched, the stock could be vulnerable. If not immediately after this week’s announcement, then into September, when the Hamptons empty out and offices across the country are filled with “How was your summer?” chatter.
NVDA’s report this quarter comes at a time when some on Wall Street are questioning how long investors will be patient. Not with NVDA’s market-driving, life-altering chips. The company is way past the stages of viability, market leadership, and the challenge of competition. Most of that is in the rear-view mirror. But with the intermittent concerns about Chinese competition. And more recently, potential constraints that could arise from an NVDA relationship with the U.S. government, which seems intent on creating its own index fund, one stock at a time.
But the biggest hurdle for NVDA this time around is an old issue that tends to creep up when a stock gets so big, so powerful, and so closely watched that it becomes a proxy for the market’s entire mood. Let’s face it, if you own an index fund, NVDA is your biggest holding. And if you don’t, you probably own it in some other form.
I’ll finish below with my collar analysis, but that’s only one of four ways to play the other side of an Nvidia earnings disappointment. This has nothing to do with the actual numbers. It is all about the vibe for this stock now. And the growing concerns that all the AI chips in the world won’t be a long-term bullish situation if the buyers of those chips take a long time to monetize those chip investments.
This was the story of the dot-com bubble. The internet was the real deal. But it was assumed to deliver instant profits for those paying up to build off of it. It took a few years longer, and it crushed the market. That’s a risk with NVDA now. The profits have to match the expectations.
When NVDA Drops, These ETFs Rise
NVDA is one of many stocks that now have “inverse” ETFs built around them. These funds typically use derivatives, such as the three shown here.
If the goal is to simply have a position that moves in the exact opposite direction of NVDA stock, the Direxion NVDA Bear -1X ETF (NVDD) aims to deliver just that. As with most inverse and leveraged ETFs, NVDD is designed to provide that inverse exposure one day at a time. So the mathematics of investment loss, and the expense ratio on inverse and leveraged ETFs, can work against investors over time. So these should be used for trading, not long-term investing.
For those not satisfied with trying to crush it on NVDA dips and only getting a mirror image of the daily move, the Tradr 1.5x Short NVDA Daily ETF (NVDS) and the Graniteshares 2x Short NVDA Daily ETF (NVD) take that inverse idea further.
These are relatively small ETFs, which is another risk to monitor and research. Spreads on these are not as tight as for NVDA stock itself. And that leads me to the other two ways I’m highlighting here for NVDA bears.
They both involve options. However, the first only requires buying one option, a put, on NVDA. You don’t have to hold the stock, since the assumption is you want to profit from a decline in Nvidia.
Here’s what a put option might look like as of Monday’s market close. I chose a close expiration date since the idea is to capitalize on a huge drop on earnings. These are volatile, since the stock is. That means buying options can be expensive, though the IV Rank below indicates that NVDA is in the bottom 28% of its 12-month volatility range. So, relatively cheap.
$445 paid gets the option holder the right to sell 100 shares of NVDA at $170 before expiration day in a few weeks. So the stock really needs to fall to under $166 to make a clear profit. However, if it occurred this week, right after Wednesday’s announcement, that might allow the put option holder to profit without the stock actually getting down to that level. Options on stocks like this are more about trying to profit from volatility that accompanies a sudden change of circumstances. Like a rush for the exits on a stock.
How to Collar NVDA
And, since I’m a guy who enjoys a good collar when I see one, here’s how that strategy can work when you have a volatile stock around earnings.
The example below strikes the put at $180 to that same 9/19/25 expiration date as above. However, I also write a covered call out to only that same date, and I get all the upside to $228. So my cost of the option is essentially my cost. And the upside? 22%, five times the downside.
NVDA is like its own table at the Wall Street casino. There are so many ways to try to profit from it, other than buying and holding it. And since holding it when it falls sharply and stays down is not something all investors are willing to take on, it helps to know that whether you own the stock or not, you can profit when NVDA falls, not only when it’s rising in price.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
