July 25 (Reuters) - Making leveraged bets on Nvidia ( NVDA )

is likely to get much riskier if Wall Street's tech-led

selloff continues.

Exchange-traded funds (ETFs) designed to magnify the daily

moves in the chipmaker's shares by as much as two times have

been a popular vehicle for investors seeking to jump on the

stock's meteoric rise this year, with total assets swelling to

about $6.3 billion as of this week from only $342 million in

December 2023, according to data from CFRA.

But while the stock's roughly 130% year-to-date rally has

rewarded bullish bets, recent turbulence in tech shares could

amp up the risk for traders seeking to profit from Nvidia's ( NVDA )

gyrations.

Nvidia's ( NVDA ) shares fell by nearly 7% in Wednesday's selloff,

taking the leveraged ETFs down by as much as 13.5%. The S&P 500

index fell 2.3%, its worst loss since late 2022, as

investors reacted to disappointing earnings from Tesla and

Google. The chipmaker's shares were down about 3% on Thursday.

More turbulence could come next week, as investors await

results from Apple ( AAPL ), Microsoft Facebook-parent

Meta and Amazon.com ( AMZN ).

"Leverage goes both ways," said Todd Sohn, ETF analyst

at Strategas Securities. "It's great in a bull market, but when

expectations are so high that any nerves cause a stock to

unwind, the selloff is painful and quick."

The popularity of these ETFs is another example of how the

eye-watering surge in Nvidia's ( NVDA ) shares has pushed investors to

ramp up exposure to the stock, even as they increase the risks

to their portfolios if the company's fortunes turn.

"Leveraged ETFs are for people who are comfortable with

risk," Will Rhind, the CEO of GraniteShares, told Reuters in the

latest episode of Inside ETFs.

'VOLATILITY DRAG'

While it's not yet clear whether investors were net buyers

of leveraged ETFs tied to big tech stocks across the board

during Wednesday's selloff, both GraniteShares and REX Shares,

two of the asset managers that offer these products tied to

Nvidia ( NVDA ), said traders used the selloff as an opportunity to buy.

That would be consistent with investors' behavior over the

past few weeks. The GraniteShares 2x Long Nvidia Daily ETF

, which offers traders a daily return of double Nvidia's ( NVDA )

movements higher or lower, has attracted $1.06 billion of net

inflows in the last month, during which Nvidia's ( NVDA ) shares had

fallen by nearly 6% up to Wednesday.

Meanwhile, the T-Rex 2x Long Nvidia Daily Target ETF

has seen inflows on days when Nvidia's ( NVDA ) share price has

fallen, according to flows data from the company, and has pulled

in $75.7 million since the beginning of June.

The run-up in Nvidia's ( NVDA ) shares has also bolstered the

leveraged ETFs' popularity with short sellers, who seek to

profit from stock declines. Short interest in the GraniteShares

ETF hovered around 15% of outstanding shares for the first half

of July, compared to 1% in April, data from Vanda Research

showed.

These ETFs can be risky for those who don't use them as day

trading vehicles - which they are intended to be - and hold

longer term, analysts said.

Doing so can make investors vulnerable to so-called

"volatility drag," a phenomenon that over time can magnify gains

or losses even beyond the leverage the fund provides. That could

compound losses in a down market, because issuers reset the

exposure to Nvidia's ( NVDA ) underlying stock price every day.

"In choppy markets, these leveraged products that have to

buy the underlying stock when it goes up and sell when it goes

down can get crushed," said Bryan Armour, ETF analyst at

Morningstar.