Market anticipation for NVIDIA's earnings is shifting towards caution over downside risks. The latest signals from the options market indicate that while investors chase gains, they are also heavily purchasing protective positions. This unusual dual strategy suggests market volatility could expand significantly. NVIDIA is scheduled to report earnings after the U.S. market close on Wednesday. Brent Kochuba, founder of derivatives analytics firm SpotGamma, noted in a recent report to subscribers that if a large number of investors holding NVIDIA call options take profits after the earnings release, this report could become an inflection point for a fragile market. Concurrently, the "fear gauge" VIX has risen consistently over the past two weeks, moving higher alongside the S&P 500 Index—an atypical combination viewed by some market participants as a signal that investors are actively hedging against a potential pullback. The Nasdaq Composite Index recorded its first consecutive two-day decline since March on Monday, pausing a weeks-long rally. The high-flying semiconductor sector faced pressure, while software stocks gained against the trend, showing early signs of sector rotation. Art Hogan, Chief Market Strategist at B. Riley Wealth, warned that as earnings season nears its end, the market is struggling to find new positive catalysts. The macro pressure from persistently rising bond yields is returning to investors' focus.
Unusual Options Market Activity: Simultaneous Rise in Bullish and Protective Positions
According to SpotGamma data, the implied volatility and Implied Volatility Rank (IV Rank) for several semiconductor stocks and tech ETFs are at historically high levels, indicating the options market is pricing in extraordinary volatility. Specifically, the at-the-money implied volatility for the VanEck Semiconductor ETF (SMH) is 46.97, with an IV Rank as high as 92.59. Marvell Technology's implied volatility reached 96.45, while the IV Rank for memory chip stocks like Micron Technology and Western Digital also exceeded 80. Kochuba pointed out that implied volatility typically has an inverse relationship with the price of the underlying asset. "When both rise simultaneously, it signals that traders are chasing upside while also paying a premium for protection, preparing for increased market volatility." This abnormal pattern is also evident at a broader market level. Although the Implied Volatility Rank for the SPDR S&P 500 ETF Trust and the Invesco QQQ Trust is relatively lower, the combination of a rising VIX alongside the S&P 500 continues to draw attention—a departure from the norm.
Earnings Season Nears Conclusion as Macro Pressures Resurface
In an interview with MarketWatch on Monday, Hogan noted that during earnings season, investor attention often shifts from macro factors to individual stocks, overlooking the macro drivers that previously moved the market. "Investors have been turning a blind eye to inflation signals, ignoring warnings from the U.S. Treasury yield curve, while the 10-year Treasury yield has breached 4.5% and still shows upward momentum." Wall Street firms, including Bespoke Investment Group, suggest that Walmart's earnings report on Thursday will mark the unofficial end of this strong earnings season. Once the positive catalysts from corporate profits are exhausted, investors may face a lack of new positive drivers, especially against the backdrop of unresolved tensions in the Strait of Hormuz and persistently high global bond yields. Hogan stated that NVIDIA's upcoming earnings could repeat the post-earnings "sell-on-the-news" pattern seen last quarter. He added, "The reality of stubborn inflation and rising interest rates is regaining attention, which is the fundamental reason for the market volatility seen last Friday and Monday." NVIDIA has historically been one of the few individual stocks capable of influencing broader market trends, with its earnings reports having a significant ripple effect on the semiconductor and broader tech sectors. Kochuba believes that if call option holders collectively unwind their positions post-earnings, it could trigger systemic selling pressure at the market level, not just confined to the individual stock. The current market is in a delicate state: bullish sentiment coexists with defensive demand, and the balance between bullish and bearish forces could be disrupted by a single event. At the tail end of earnings season, as macro variables regain dominance, NVIDIA's performance report on Wednesday may serve as a critical test for the sustainability of the recent rally.
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