The options market is complacent about Nvidia’s earnings report

Even though the stock market has taken on a bit of water recently as momentum stocks plunge, traders aren’t bracing for fireworks when Nvidia reports earnings after the close on Wednesday.

The options-implied earnings move for Nvidia is plus or minus 8.5%, per Bloomberg. And, using data from last week’s close, Bank of America’s team of equity derivatives strategists show that earnings reaction implied by options prices is on the very low side compared to recent history.

“Markets seem less prepared than usual for a positive surprise out of Nvidia earnings,” they wrote, also flagging that the calls are fairly cheap relative to puts. “But that may only prove an opportunity to add exposure to what we still think is a major right tail risk for AI stocks (owing to the combination of bubble likelihood + large US policy experiment + US/China arms race).”

Earlier this month, Bank of America analyst Vivek Arya reaffirmed that Nvidia was his top pick in the semiconductor space.

In the options market, most of the call open interest for this Friday’s expiry is concentrated at the $140 strike, which is far, far above where the shares are currently trading. It would take a gain of more than 13% to get close to that level. On the other hand, there’s a lot of open put interest at the same $140 strike, leaving lots of scope to monetize those positions and give the stock a short-term boost should Nvidia’s results hold up well.