NVDA's rising volatility has made it the riskiest short among mega-cap stocks, surpassing TSLA in value-at-risk. Unlike past trends, short sellers did not react to NVDA’s recent 15% drop, breaking its historical correlation. With short interest lower and earnings approaching, NVDA could see a post-earnings rebound, though volatility remains elevated.

NVDAs increase in volatility makes its short interest value dwarf its peers

We previously introduced the concept of short notional value at risk, which multiplies the short notional position by the average daily move.

It measures the aggregate daily risk to the shorts in a position, depending equally on the size of the position and the volatility of the stock.

For example, a short notional position of $10 billion with a daily risk of 2% has a value at risk of $200 million, while with a 4% daily risk, it’s $400 million.

In the past, TSLA, even though it didn’t have the largest position, was the riskiest short, as TSLA was much more volatile than NVDA.

What has changed is that TSLA has become less volatile, while at the same time, NVDA had a record move of 165. NVDA and TSLA used to be equally volatile, then for a period, TSLA was more volatile, and now NVDA.

NVDA has twice the daily value at risk as TSLA, being more volatile and larger.

The other companies in the top ten are the super-cap companies—AAPL, MSFT, META, AMZN, GOOG have small positions in percentage terms and low volatility.

This is followed by smaller companies with large positions in percentage terms and high volatility, such as PLTR and SMCI.

Shorts gained a record $6 billion on the day the Chinese company Deep-Search announced its results, threatening NVDA’s dominance in the AI space.

Shorts didn’t respond to the record sell off as the former relationship between short and stock price has ended

For a year, NVDA's short position had a positive correlation with the stock price, meaning investors were shorting on the way up and covering on the way down in a reversal strategy. This was a strong relationship.

Before this, it was a momentum strategy, with investors covering on the way up and shorting on the way down.

Now, there is no relationship. The short position did not change significantly when the stock fell 15%, as the short market ignored it.

With stock and short interest down, we expect NVDA to trade up post-earnings.

NVDA reports today after the close.

The stock is down 6% in the past week, which is bullish as the stock typically reverts. However, the short interest remained constant, so we usually don't make a forecast based solely on stock price.

The most recent short interest is also lower, which is slightly bullish.

With two bullish signals, we believe NVDA could trade up, although with an expected 8% move in either direction based on the option market, anything can happen. The short interest signal is moderate.

NVDA’s shifting volatility dynamics and decoupling from short positioning mark a critical shift in investor behavior. While short risk is at record highs, shorts did not respond to the recent price drop, signaling a change in strategy. As earnings approach, NVDA remains a high-risk, high-volatility stock that demands close attention.

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