Options Traders Brace for Record $300 Billion Swing in Nvidia's Post-Earnings

Options Newsman joined discussion · Nov 20, 2024 18:17

Options traders are primed for a nearly $300 billion swing in $NVIDIA (NVDA.US)$'s market value following the chipmaker's quarterly results on Wednesday, U.S. options market data showed.

Nvidia options implied an 8.5% swing for the shares in either direction following the results, according to data from options analytics service ORATS. This is in line with previous percentage moves following results over the last 12 quarters (±8.3% on average). But with the AI-chipmaker's market cap having grown to $3.61 trillion, the expected swing in market value is close to the biggest ever, at about $306 billion.

Options Traders Brace for Record $300 Billion Swing in Nvidia's Post-Earnings

Source: moomoo

The post-earnings moves in Nvidia's shares have typically undershot market expectations. However, larger-than-expected moves have tended to be to the upside, said ORATS founder Matt Amberson.

Of the last 12 quarterly earnings reports, five post-earnings moves have been outside what has been expected by the market. Of those, all have seen the stock price go higher, Amberson said.

Christopher Jacobson, a strategist at Susquehanna Financial Group, wrote on Monday that traders are assigning a slightly higher probability to an outsized move to the upside than to the downside. Meanwhile, the current volatility skew, measured by the difference between the implied volatility of 25-Delta Put and 25-Delta Call, indicates that market sentiment is Slightly Bullish on Nvidia.

Source: Market Chameleon

The IV of Nvidia spikes higher as earnings approach

As the chart shows, the implied volatility (IV) of Nvidia is beginning to spike higher as earnings approach, and is significantly higher than its historical volatility (HV).

Source: moomoo

Traders buy the options that are going to expire right after earnings in hopes that a large move will occur. The following chart shows the upcoming earnings expirations and the implied volatility for each date of Nvidia’s recent at-the-money 147 strike, the largest implied volatility is in the series that expires immediately after the earnings report.

This pattern is quite typical when an event such as an earnings announcement is about to occur, the series that expire just after earnings date are inflated in terms of implied volatility, but the ones expiring later are not. So, if you believe that volatility will decrease after the earnings report, you can use a short straddle or short strangle strategy to short volatility.

Additionally, if you are bullish on Nvidia and believe that Nvidia will not decline in the short term, you can create a bull put spread (e.g. selling the Nov. 22, 135-strike put and buying the 130 put). That represents a 18.4% (max profit / max loss) return on risk between now and Nov. 22 if Nvidia remains above 135. If Nvidia closes below 130 on the expiration date, the trade loses the full $422.

Please remember that options are risky, if the volatility and share price moves in a direction opposite to what the investor anticipates, they may incur substantial losses.