Nvidia Options Signal Outsized Share Volatility After Earnings

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Nvidia (NVDA) shares have been pushed higher recently, which could draw bets on a bigger-than-usual share move after the chipmaker reports quarterly results after the close on Wednesday. Options data suggests traders appear positioned for Nvidia to make good on investor expectations of another strong earnings report.

NVIDIA will announce its second-quarter results after the market closes on Wednesday and host a conference call at 5 p.m. ET to read prepared remarks and take questions from analysts and investors. The conference call will be webcast live on Nvidia’s investor website.

Expectations are high for Nvidia to report a second-quarter profit of $1.22 per share on $7.43 billion in revenue, a boost of more than 48% year-over-year. Nvidia is expected to post the most significant percentage year-over-year increase of any technology company on the S&P 500 this quarter, according to Refinitiv estimates. The company’s share price has climbed 11% since the start of last week and has gained 210% year-to-date.

The Nvidia stock price trades at about a premium to its book value, or the value recorded on the company’s balance sheet, representing its actual underlying business value. This is also referred to as intrinsic valuation, and it is one of the tools used by investment professionals to determine whether a stock is a buy or sell.

The price of Nvidia shares may be elevated above its actual underlying value due to various factors, including the expectation that the company will grow. As such, investors must be careful when assessing Nvidia’s current value.

While a positive Nvidia earnings report is unlikely to push the S&P 500 or Nasdaq 100 indexes up, it may lift other semiconductor stocks, such as Taiwan Semiconductor Manufacturing Co. or Advanced Micro Devices Inc., also listed on the major exchanges. This could benefit the exchange-traded funds that track these sectors, such as State Street’s S&P 500 ETF (SPX) and Invesco’s Nasdaq-100 QQQ Trust.

Nvidia’s options imply a nearly 11% swing for the shares, in either direction, by Friday, according to Trade Alert data. That would be larger than the 8.6% average swing on the day after the chipmaker’s results over the last eight quarters but still lower than the 24.4% jump Nvidia shares saw following its most recently reported results in July. Traders appear to be positioning for an upside move, as implied volatility is rising and open interest in the option contracts is rising. This indicates that traders are buying call options and selling put options to make money as Nvidia’s share price rises. However, the option’s premium skewness could signify crowded long positions on the part of bulls. Therefore, a more bearish strategy might be to short calls or buy puts in the hopes that Nvidia’s share price falls. All content and tools on this page are provided to users free of charge but are not meant to substitute for professional financial advice.

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