NVDY ETF: Covered Call Plays in Nvidia Q2 Report (NYSEARCA:NVDY)

NVDA (NVDA) has been a call-writer’s dream for the past two months. Implied volatility increased as the stock price climbed to its June 20 intraday peak above $140. The past seven weeks have mostly seen head-to-head sideways price action, marked by a low of just above $90 around the yen’s sharp collapse in Aug. 5 trade.

All eyes are now on the upcoming earnings release, confirmed to take place on Wednesday, August 28 AMC. Ahead of the Q2 2025 release, I have a Buy rating on the YieldMax NVDA Option Income Strategy ETF (NYSEARCA:NVDY), ie an upgrade since my hold initiation.

We first looked at NVDY in the spring, highlighting a correction that took place in the stock of the leading chip designer. NVDA kept going for a bit, then took off after Q1 Profit Ratio 2025. All this time the covered call strategy has worked well.

NVDA leading NVDY YTD

right issuerNVDY is an actively managed ETF that seeks to generate monthly income by writing call options on NVDA. NVDY pursues a strategy that seeks to reap compelling returns while retaining limited participation in NVDY’s price gains.

NVDY’s assets under management have increased since my April article. AUM is now close to $1 billion after being below $400 million just four months ago. The fund pays a high forward dividend yield of 69.6%.but investors need to understand that almost all of the dividends are generated from the sale of call options on NVIDIA stock, so it doesn’t work like a traditional yield that would come from a company that pays out cash flow to shareholders.

But of NVDY stock price momentum is very strong right now, earning it a B+ ETF grade through Seeking Alpha’s quant system. The fund is expensive, however, indicated by it a high annual expense ratio of 1.01%.so I submit that the ETF should really be more of a tactical play than a long-term holding.

For example, if an investor feels that the implied volatility is too high compared to what the realized volatility will be, then owning NVDY could be a winning idea. Additionally, if you have a neutral to slightly bullish stance, then this NVDA covered call fund would be ideal. Finally, even if NVDA shares fall, the stock often carries high implied volatility, so you can make gains even if NVDA falls modestly over a period.

NVDY: Distribution history in 2024

But NVDY is considered a Risky ETF even though it is arguably a more conservative way to play the trends in NVDA compared to owning tech company shares. Liquidity is high – average daily volume with NVDY is now over 1.6 million shares over the past three months, and the ETF’s 30-day average bid/ask spread is nine basis points, so I would encourage investors to use limit order during the less liquid period of the trading day.

Looking ahead, NVDA reports Q2 results on August 28 with a conference call right after the numbers hit the tape. You can listen live here. No other catalysts for volatility are seen on the calendar.

NVDA: Risk Calendar of Corporate Events

With respect to NVDA’s quarterly report and possible share price movements (which will of course affect how NVDY trades), we have noticed that the current level of implied volatility is high. The result is limestone that is priced at 8.9% – among the highest readings in three years, according to data from Option Research & Technology Services (ORATS).

I should point out that NVDA has beaten EPS estimates in each of the previous quarters, starting with the October 2022 report. The stock has traded ahead of earnings in five of the last six reports, trading outside the straddle range in four from the last six cases. I generally like how expensive options are right now, so NVDY’s strategy of writing calls is appropriate today in my view.

NVDA: An expensive straddle, waiting for an EPS beat later this month

The takeaway from my buy rating is that implied volatility is historically high, although it is below the peak from earlier this month. I anticipate a bid to premium in the quarterly earnings report.

NVDA: Implied Volatility Remains High, Near 60%

NVDA: Stocks are trading sideways in September based on historical trends, making NVDY an optimal strategy

Technical takeover

Another reason for my bullish stance on NVDY is that NVDA itself is coming back to key resistance levels. To be clear, a crash in NVDA would probably mean higher performance in NVDY. So while stocks have enjoyed big gains over the past two weeks, now may be the time to take a more cautious stance, and NVDY is an ideal way to do that.

Notice in the chart below that NVDA has moved up through its 50-day moving average, which is a bullish sign. But there could be a bid for the stock ready to be sold as NVDA breaches the $136 to $140 range – the all-time high area. I would expect a consolidation around this range, which would make selling covered calls (effectively what NVDY does) a compelling idea. NVDA has chart support around $90 – the low since August and where the 200-day rising moving average will soon come into play.

NVDA: Shares Snapback, retraces much of June-August decline

conclusion

After a steep correction in NVDA stock and an ongoing consolidation over the past two months, I see potential in the NVDY-option-income strategy given the implied volatility levels on NVDA and as the chip maker’s stock nears resistance on the graph.