In stock and then Nvidia.
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The semiconductor giant is almost an asset class unto itself, which makes Wednesday night’s results a market event. But as investors gear up for the big shot, something strange is happening in the options pit.
When it comes to the options market, the convention is almost always the same. Investors pay for downside protection, making the implied volatility of an out-of-the-money put higher than the implied volatility of an equivalent call. It is the fingerprint of a market that first hedges and then speculates.
Nvidia is now flipping that script. Ahead of earnings, short-term calls on NVDA are trading at a premium to puts. Positive skew in stocks is really rare. Markets are effectively pricing in more uncertainty into the upside than downside.
Nvidia since the beginning of the year
For options traders, this creates a structural advantage worth exploiting. With the stock priced at about $222, the options market suggests a price move of about $14 by the end of the week. A $245 call now costs $23. The $205 put is only $17 of your money. The calls will be further away, but the calls will cost more. This gap is an opportunity. There are two ways to profit:
Transaction 1:
For existing shareholders (or those buying stock today), a zero-cost collar with an upside slope: sell a $245 call for $1.15 to raise a $205 put. Call premiums are free funds for downside hedging. Although it limits your profits, creating a defensive “floor” gives you a mathematical advantage. Maximum profit: +$23 (~10.4%). Maximum loss: -$17 (about 7.7%).
Transaction 2:
For bullish participants who only want to trade options with asymmetric risk/reward, i.e. $210/$240 call spread.
Buy the $210/$240 call spread for about $13. The implied move is approximately $14. This means that even if the stock price goes nowhere, you could almost break even and make a profit of $17 in price appreciation. An asymmetric bet with defined risk, where the stock price does not change, there is virtually no stop decay (loss) and offers 30% higher upside potential than downside risk. Maximum profit: +$17. Maximum loss: -$13. If it’s flat, press
In short, enthusiasm for Nvidia is creating a unique opportunity in the options market. They don’t happen often.
