Nvidia Earnings -Options Markets Insight
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Ok guys let’s just jump right into it today but before we get into our analysis, let’s look at Super Micro Computer (SMCI) which is dragging Nvidia higher as well. SMCI gapping up higher as it met their financial deadline, its trading $53.62 +$8.08 on the day or 17.7%:
With that bullish for Nvidia going into earnings, lets see what the Nvidia options have for us in regards to analyzing the straddle breakeven pricing. Now when we look at a given stock on earnings day, we like to look at the weekly options to gauge potential stock moves. What the straddle does is it provides us a good idea upon how much investors are willing to pay or risk in return for both a synthetic long position and synthetic short position. Basically we take the current market price for the stock, today it is Nvidia (NVDA) and it is trading right around $133. So we call that the ATM Strike or At the Money strike price. So from here we want to take the total cost of buying both the call and the put at that strike level and this gives us the total cost or “BreakEven” cost at which the stock would have to move in order to profit from being long both the call and the put.
So let’s price them, the $133 Straddle is the total price of the Call, priced at $6.00 and the Put, priced at $6.25 for a total cost of $12.25. Now we can get the implied estimate for the potential move in the stock post earnings, which is $12.25 divided by the current price of $133, which is 9.2%. So the range for breakeven Nvidia stock price post earnings are as follows:
The $133 Call Breakeven = $145.25
The $133 Put Breakeven = $120.75
Those are the price levels by which the straddle buyer will begin to see profits. So our next step is to look at the OI or Open Interest across the options to see if we have a bias toward the upside (Calls) or downside (Puts) obviously with the majority of equities, every is bullish, so its no secret here, but the OI will give us a better target level for the Market Makers to gain max profitability. They are like bookies, they want a balanced book, an even risk across both options legs.
Calls OI from $135 to $150 estimated at 661,000
Puts OI from $135 to $115 estimated at 394,000
With this, we feel that the Market Makers sweet spot right around $122 to $124 area so will see how this one goes. If we assume $123 area then we don’t really see any advantage here honestly. When we look at this stuff we like a better than 2.5x return. So for instance the $133/123 put spread is $3.88 so you risk $3.88 to make $10 or a 2.57x return. Not enough from our base line of 2.5x but might be enough for some of you.
Anyway that is how we look at things, this one doesn’t look like its playable as options aren’t providing any real good risk/reward setups because of the heavy interest and volatility, if your a risk taker then your most likely going in short options on this thing, but that is for a select few kind of investors and traders. We have never been outright open risk premium sellers. We always viewed it this way:
You collect and you collect, and then one day you are flattened and wiped out…but hey that’s just us…Ok that is it, let’s look at the technical chart of Nvidia our green line is our post earnings estimate pricing based off of options and our outlook for Market Makers sweet spot:
Ok guys, that is it, hope you learned something today. Our goal is simple to provide you with daily insight that will actively but also subconsciously improve your understanding of financial markets, of trading and how our monetary system actually works! We hope you are benefitting from our work and if you see value in it, please hit the subscribe button, give us a like, and or share our work at the least.
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