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Nvidia earnings preview and ways to trade.
3 min read

Nvidia earnings preview and ways to trade.

Nvidia earnings preview and ways to trade.

  • Nvidia (NVDA) reports earnings after the close (~4:20pm)
  • Options are pricing in about a +/-5.4% (about $27) move by tomorrow's close
  • Prior earnings (in reverse chronological order) saw actual moves of +2.9%, +7.0%, -2.7% and +7.3%.

The Setup

Here's a 1 month expected move chart with this Friday's move highlighted, via Options AI technology:

Ways to Trade

Neutral Flies and Condors (this Friday) - First, let's look neutral with credit Iron Condors and Flies based on the expected move, isolating Friday:

Here's a closer look at the Iron Condor (5 wide wings) at the expected move:

This trade has a max gain between $462.50 and $515 in the stock. Max loss below $460 or above $520:

The same put spread, both bullish and bearish

As with any earnings, implied volatility is likely to fall hard after the report. But the stock's direction will have something to say about how much, and whether it stays low after. This is an interesting comparison using the same 50 wide put spread to be bullish or bearish and simultaneously taking a view on implied vol over the next month. Obviously vol will come in after earnings under almost all circumstances. But how much, and what it does from there likely depends on what kind of move higher or lower.

Here we'll look at the same put spread in September, selling it as a bullish position, short vol play. Then looking at is from bearish, long vol play if bought:

Bullish Credit Spread (September expiry) - First let's look at a bullish view, in line with the expected move for September expiration, then selecting the (bullish) credit -490p/+450p put spread:

This is a 50 wide credit put spread risking about 3 to make 2 with a more than 60% probability of profit. This is one way to lean bullish for those worried about an implied volatility crush. It makes money as long as the stock does not go lower, than its breakeven. It has max gain anywhere above 490 in the stock. IT's a bullish bet that NVDA stays above 490 into September, how high doesn't matter.

Here are the individual legs:

Bearish Debit put Spread (September expiry) - For those looking for a selloff over the next month, or even as a a hedge versus long stock it may make sense to actually pay for downside rather than simply selling upside.

The exact same put spread can be bought:

So here we see how using the same put spread, one as a sale, to express a bullish position and one as a buy, to express a bearish position express two different mindsets.

The legs are simply reversed, +490p/-450p (prices have changed slightly with the stock moving around):

The key here is this as a bearish expression one would be slightly less worried about implied vol falling. If the stock goes higher implied volatility is likely to fall precipitously, and a short put spread rather than a long call spread protects against that. On the flipside, if NVDA were to go lower on earnings, or with the market over the next month, implied volatility will decrease less (after earnings) than it would if the stock went sideways or higher. And it may even pick up on a big move lower.

Previously:

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