What the option market tells us ahead of Nvidia's earnings report
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In this edition, we will delve into the hottest topic in this week!
After the U.S. stock market closes on Wednesday (21 Feb), the market will face Nvidia's major financial report examination.
Following a nearly 240% surge in 2023, Nvidia's stock has soared nearly 50% in less than two months into 2024, with the share price already surpassing $700.
As of last Friday's US stock market close, Nvidia's market value has successfully exceeded Google, making it the third-largest company by market capitalization in the US.
Looking at the options data, the number of bullish options on NVIDIA overwhelms the bearish ones. The call volume is notably high at 1,083,996, put volume at 635,907, OI at 4,115,500.
From the perspective of the number of shares corresponding to the options and the options' monetary value, the bullish sentiment outweighs the bearish sentiment:
(Source: TradingFlow)
DEX：Delta Exposure, option dealer delta exposure converts option trading size to an equivalent stock volume (bought or sold).
Analysts believe that the recent strong performance of Nvidia call options may have been a driving force behind the upward momentum of Nvidia and even the broader US stock market over the past four months. There are concerns that even if Nvidia's earnings meet expectations this week, the fervent momentum driven by call option bets may not be sustainable.
Brent Kochuba, the founder of SpotGamma, suggests that typically, after Nvidia's earnings are released, the implied volatility in the options market may decrease, potentially leading to a decline in option prices.
According to MarketWatch, the speed at which traders are flocking to out-of-the-money call options has surged to levels reminiscent of the 2021 meme-stock craze.
Specifically, the skew in Nvidia options trading has reached a new high since June of last year. (Note: Here, 'skew' measures demand for out-of-the-money calls compared with out-of-the-money puts for Nvidia.)
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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Before making any financial investment decisions, please ensure you thoroughly understand all aspects of the information and conduct your own research.