NVDL: Buy The Real AI Driver And Create DIY Option Income

seekingalpha07-30

J Studios/DigitalVision via Getty Images Introduction AI is coming closer to becoming a reality. The Q2 earnings from the so-called AI players will soon be examined in depth against their AI plans. ...

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The Q2 earnings from the so-called AI players will soon be examined in depth against their AI plans. ...</p>\n\n<a href=\"https://seekingalpha.com/article/4707732-nvdl-buy-real-ai-driver-create-diy-option-income\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE0009356076.USD","symbol_name":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A2\" (USD) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4707732-nvdl-buy-real-ai-driver-create-diy-option-income","article_id":"2455169127","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2115707415/image_2115707415.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2455169127","pubTimestamp":1722275585,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"J Studios/DigitalVision via Getty Images Introduction AI is coming closer to becoming a reality. 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The Q2 earnings from the so-called AI players will soon be examined in depth against their AI plans. Some analyst suggests looking at \"a 'more stable' AI play\". I won't use \"AI\" as a playground for this type of \"defensive\" strategy. AI to me is a fast growth opportunity, which is an inherently risky investment. I could choose not to believe it, or evaluate my risk tolerance together with the matching market environment, or start my betting on the \"true\" opportunity. I will feature a strategy that will use GraniteShares 2x Long NVDA Daily ETF (NASDAQ:NVDL) as the starting position to build an AI wealth grower in my portfolio and YieldMax NVDA Option Income Strategy ETF (NVDY) as a feeder pumping money into NVDL. Income investors can also sweeten the deal by selling the juicy covered calls and create \"Option Wheel\" on NVDL. The current retreat of NVDL should be a correction in nature which will lead to a healthier market for NVIDIA (NVDA). I believe it is time to start a powerful income growth engine that strives for an amazing total return with an \"AI chip rush\" tailwind on your side. NVDL ETF Highlight NVDL is a leveraged ETF actively managed by Graniteshares, with the following official goal statement: The Fund seeks daily investment results, before fees and expenses, of 2 times (200%) the daily percentage change of the common stock of NVIDIA Corp. The ETF has a pretty straightforward strategy. It relies on one underlying NVDA and is viewed as non-diversified. It uses swap agreements with major financial institutions to accomplish the designed daily financial effects. NVDL Top 10 Holdings - from marketchameleon.com NVDL is greatly expanding NVDL exposures by its daily double effect. The ETF's performance will be dictated by NVDIA, the dominating number one AI Chip maker in the world. The following is the key market characteristics of the ETF:  Total Assets (AUM): $4.24B. It is a pretty large and popular leveraged ETF Volume (last day): 15,979,252. Big trading volume. Inception: December 12, 2022. Expense Ratio: 1.15%. It is very high for a single-underlying ETF. It may be factored in the return offsetting and/or the cost associated with SWAPs. Volatility(30-Day IV): 101.0. This is a huge volatility level.  Note that the SA Quant Rating has shown a strong rating history for NVDL. The current rating is BUY with a A+ Momentum, as shown below: NVDL Rating - from SA NVDL is a more aggressive grower with profitable DIY option income The reason I chose it to kick off the \"engine\" is the 2X nature; it will jump start the \"engine\" using smaller capital rather than using the underlying NVDA. In addition, due to the 2X nature, it serves as a more effective price compensator to the price loss after the huge distribution from option income ETF NVDY. The income investors also have more cushion to keep the money in the bank serving other needs, because they could deploy less money for the growth. The higher volatility can also facilitate the call options selling. The following is a snapshot of call options in the week of 2024-8-09. It can be seen that the weekly option has an IM over 110% that can produce an enormous premium profit margin. As will be discussed in the next section, one example ($59) of 4% strike price offers 6.7% call premium. NVDL Weekly Option Chain - from Barchart.com Please keep in mind that the call premiums will not fixed. In fact the premium percentage could change drastically based on a number of factors, including the volatility level (IV), duration (which week or month), striking prices, trade prices, etc. On the other hand, it does allow the traders to select the call options that will match their market needs and the supporting strategies. As an illustrating use case, I am a believer in \"AI chip rush\" and I believe it is the realized AI growth. I will buy the current NVDA pullback and open a starting position with NVDL. I plan to move gradually and adaptively based on the market sentiment, which should be improve based on the Q2 GDP growth exceeding the expectation. I also want collect income on a monthly basis and will adjust my bet on the risky growth investment in the next few months in 2024. The next option income ETF with NVIDIA exposure will be an excellent choice to include and compliment NVDL used as a growing engine. NVDY provides huge income stream allowing great flexibility in adjusting DIY strategy YieldMax NVDA Option Income Strategy ETF  Total Assets (AUM): $913.81M Volume (last day): 1,141,317. It is a popular single-underlying option ETF. Inception: 07/13/2022. A new ETF of 1.5 years. Yield: 115.41%. It is changing per volatility. Monthly distribution is high enough to put some back in use. IV(30-Day): 31.0. The volatility is around the 52-week average.  One of the big issues with the big distribution is the fast drop of the price on the ex-div day. This drop may not be covered by the prior level, leading to possibly small overall capital to be used or bigger risk for leverage. On the other hand, the covered calls have set the up limit for the price appreciation in the short run. This could be a big problem for volatile stocks like NVDA; the daily swings could push the price way over the striking prices of the call options sold. Hence, NVDY is not suitable to be a growth engine. In fact, the compound effect could make huge difference in the long run, i.e. AI generational growth. The good news is that the income vectors have choices to deploy the huge monthly distribution into a 2X growing engine NVDL. Note NVDL itself is a great choice for the grow engine. I have selected NVDL for many reasons including the higher option income, the more powerful price recovery for NVDL's distribution, and a more flexible starting position with much more observable results for quick adaptions. The following is a summary of my adaptive tactic:  Check the trend of the underlying. A volatile and upwards trend will facilitate the reinvest (default) option for the NVDY. That's no change. A downtrend will remove the reinvest on NVDY and keep the whole cash. Update the reinvest to buy NVDL shares. Sell NVDL covered calls at the strike price derived from the recovery gap created in NVDY (4%) SEC Yield. The following gives a reference example of call's premium at 4% higher strike ($59), which offers about $3.8, representing 6.7% income more than enough to compensate for the 4% price drop (assuming equal weights for NVDL and NVDY). On the next day, (when the NVDY distribution is delivered in the account) rebalance holdings on NVDL and NVDY using the income from both distribution and option income.  The above processes appears to be time consuming and laborious, but the process itself is pretty much rule-based, which can be executed automatically with the necessary tools and monitors. I will cover this part in my future write-up. Please stay tuned. Risks & caveats Investors are required to understand the risks and make their own investment decisions. NVDL is a leveraged ETF, and the following regulatory reminder to retail investors from FINRA is a must read. The NVDL official site also contains a list of risks that investors need to digest before investing in NVDL and its options. I will specifically quote the following due to its high relevance with the article: The fund should not be expected to provide 2 times the cumulative return of NVDA for periods greater than a day. The tactics mentioned in this article are for demonstration purposes. The actual execution and result may vary greatly depending on the price trend and its behavior. For example, a sustained down trend of NVDA could cause the total asset of the target combo (NVDL and NVDY) to go down significantly. Some hedge options such as Tradr 1.5X Short NVDA Daily ETF (NVDS) may be highly desirable to provide some protection. Conclusion  AI chip rush has been proven to be the real AI growth. The recent pullback of NVDA/NVDL prices is a good opportunity for income investors to start AI chip exposures and get involved with this huge growing market. I recommend a gradual and adaptive approach with NVDL as a starting position. NVDY with its over 100% yield can be added to provide the new money for increasing NVDL shares. NVDL's super volatility should be monetized by DIY call option selling on the regular basis. 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