The long-awaited day is upon us. After much ink (more likely, pixels) has been spilled on the topic of Nvidia (NVDA) earnings, we will finally learn the results after today’s close. It bothers me to think that one company’s results are perceived as being consequential for the equity market’s performance on the whole, but in this case it is not an exaggeration.
In yesterday’s piece, we outlined the ways that NVDA influences a wide range of other key stocks and sectors beyond semiconductors. We won’t belabor them again today – read this linked article instead – but suffice to say that when artificial intelligence remains the dominant market theme and the other six Magnificent Seven stocks are among its largest customers, we feel comfortable continuing to assert that NVDA is the market’s Atlas, hoisting whole indices upon its broad shoulders.
The question before us is not whether NVDA will report good results. Even a subpar quarter from NVDA would be considered amazing for almost any other company. We’ve gotten spoiled by their unprecedented ability to beat on the top and bottom lines, raise guidance, then do it all again next quarter. The question before us is less about whether they will meet expectations but instead how much they will raise guidance going forward, and whether there is a “whisper number” that exceeds even the published expectations. The recent rally increases the likelihood of heightened expectations being priced in. Below is a helpful “cheat sheet” for interpreting this afternoon’s results (though it is impossible to quantify the potential impact of comments about the new Blackwell chip) :
So, what might the options market be telling us about the potential post-earnings moves for NVDA? Bearing in mind that the last four of the last six post-earnings moves have exceeded 9% (+9.32%, +16.4%, -2.46%, +0.1%, +24.37%, 14.02%), it is hardly unreasonable to see that at-money options expiring this week are currently pricing in over 10% daily moves between now and Friday:
NVDA Skews for Options Expiring August 30th (green), September 6th (blue), September 20th (yellow)
Source: Interactive Brokers
Unlike before previous quarters, when skews were essentially flat, we do see a bit of a downside bias for options roughly +/- 20% from current levels. The skew steepens dramatically below $100, but that might be the result of NVDA’s recent flirtation with that key level:
NVDA Skews for Options Expiring August 30th (green), September 6th (blue), September 20th (yellow)
Source: Interactive Brokers
The IBKR Probability Lab also shows some modest risk aversion, with a peak outcome shown around $117.50, about 4.5% below current levels:
Source: Interactive Brokers
Both NVDA and broad indices and have sold off a bit since I started writing this piece. It is not unreasonable to think that at least some of that reflects a bit of concern ahead of today’s earnings report. Paradoxically, the more we sell off today, that might be a good thing for tomorrow. It is not necessarily a bad thing when people show some healthy risk aversion ahead of a potentially market-moving event – they’re less likely to get blindsided. Frankly, it’s a lot scarier when people are truly sanguine. That said, there was a considerable amount of good news priced in when the stock rallied from $100 to $125 in just three weeks. We’ll find out soon enough whether that was appropriate.
Disclosure: Interactive Brokers
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Disclosure: Options (with multiple legs)
Options involve risk and are not suitable for all investors. For information on the uses and risks of options, you can obtain a copy of the Options Clearing Corporation risk disclosure document titled Characteristics and Risks of Standardized Options by clicking the link below. Multiple leg strategies, including spreads, will incur multiple transaction costs. “Characteristics and Risks of Standardized Options”
Disclosure: Probability Lab
The projections or other information generated by the Probability Lab tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Please note that results may vary with use of the tool over time.
