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Options Indicate Nvidia's Results Might Cause A $200 Billion Swing In The Stock

Options Indicate Nvidia's Results Might Cause A $200 Billion Swing In The Stock
After the chipmaker Nvidia releases its earnings on Wednesday, traders are pricing in a significant rise for Nvidia's shares, although U.S. options markets indicate that expectations for volatility are lower than in the past.
Options research company Trade Alert indicates that Nvidia's options are expected to move 8.7% higher or lower by Friday. This translates to a $200 billion market value swing, which is more than the market capitalization of around 90% of S&P 500 businesses.
That suggested gain, while significant by conventional standards, would be significantly less than the 16.4% increase in Nvidia's stock that followed the company's most recent quarterly results release. Additionally, it is less aggressive than the 12% move that traders had priced on average over the previous eight quarters.
"Volatility and expectations had been a fair amount higher the last time around," said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.
With a rise of over 87% this year, Nvidia is seen as a leading indicator of the rapidly developing AI sector. With a market valuation of approximately $2.3 trillion, it is currently the third-largest corporation on Wall Street, behind Apple and Microsoft. Wall Street is expecting Nvidia to release a stunning quarterly report.
In recent months, investor interest has expanded to include additional AI theme benefits.
"The advantages of AI are expanding to include power, commodities, and utilities," BofA strategists, Gonzalo Asis among them, stated in a note on Monday. "It's not just about NVDA anymore."
Compared to 37% over the previous 12 months, BofA's strategists predict the business will contribute 9% of the S&P 500's earnings growth over the upcoming 12 months.
However, this does not mean that the company's share price will be unaffected by the impending earnings announcement.
The creator of the options analytics firm ORATS, Matt Amberson, pointed out that the implied volatility of out-of-the-money calls is comparable to that of out-of-the-money puts. That implies that, despite the company's already significant year-to-date gains, options traders are not discounting the likelihood of more upside for the stock.
According to Amberson, "traders anticipate up moves to be as violent as down moves."
Based on LSEG statistics, Nvidia is predicted to report earnings per share of $5.59 and increase its quarterly sales to $24.65 billion from $7.19 billion in the previous year.
An Nvidia decline, according to Interactive Brokers chief analyst Steve Sosnick, may put investors' determination in the larger AI trade to the test.
"Yes, the rally has broadened out, but I'm not sure how sturdy it would be if Nvidia sold off hard," he stated.
"The AI trade has a lot riding on it," Sosnick stated.

Christopher J. Mitchell

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