The financial reports of chip giant NVIDIA always capture market attention, but the significance of this upcoming report is particularly immense. Reports suggesting a potential U.S.-China trade deal have reignited hopes, with market expectations that NVIDIA may receive approval to export chips to Chinese companies.
The world's most valuable company has seen its stock surge another 20% since May 5th; it jumped 4.4% last Thursday following reports that the U.S. had approved several Chinese firms to purchase NVIDIA's H200 processors for AI computing. NVIDIA's market capitalization is now nearing $5.7 trillion, a significant leap from the $4.7 trillion at the close of last Tuesday.
The rapid ascent in the stock price has left many bullish traders who purchased call options ahead of this earnings report already in-the-money (meaning the current stock price is above the option's strike price). This has elevated leverage in the options market, creating pressure ahead of a concentrated options expiration this Friday and next week: the notional Delta amount for these options stands at $40 billion, against a total premium of just $4 billion.
NVIDIA is scheduled to report earnings after the market closes next Wednesday, May 20th.
By trading volume, the ten most active NVIDIA option contracts all expire today; among them, the $235 strike call option carries a premium of $114 million, corresponding to a Delta of nearly $5 billion. Traders holding this contract need to ensure the stock price maintains at least this week's gains through Friday's close, otherwise the option's value will rapidly erode.
Brent Kochuba, founder of SpotGamma, stated, "The market is repricing the positive impact of a 'China market reopening' for NVIDIA, which is the core logic behind the current capital repositioning. The value of these call options is rising substantially."
Looking ahead to next week's earnings report, the market anticipates significant stock price volatility. NVIDIA's earnings implied volatility is near 7.5%, more than double the average volatility range of the past four quarters.
Through next Friday, May 22nd, the most actively traded option contract is the $250 strike call, currently priced around $4 — bullish traders need the stock to reach at least this level to break even.
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