To The Moon

The TL;DR: The broader market wants one final rally to new highs before the next rate cut, and that push is heavily dependent on Nvidia's earnings catalyst.

However, this quarter's Nvidia options flow shows a lack of aggressive bullish positioning like single-leg put overwriting or outright call buying. Perhaps institutions are more concerned about economic risks than getting ahead of robust earnings reactions this time around.

This creates an odd dynamic where the overall market isn't outright bearish, but is lacking those conviction institutional buy-side flows that inspire confidence. My conservative approach is to simply overwrite via the $NVDA 20240830 115.0 PUT$ .

Starting with the index, $SPY$ options are leaning more definitively bullish compared to Nvidia's contract flow. But the trajectory of SPY is inextricably linked to how Nvidia trades post-earnings.

On Tuesday, there was a massive 55,000 contract covered call trade in SPY, selling the $SPY 20240920 570.0 CALL$ .

With SPY's all-time highs around 565 and the current price near 560, that 570 strike call overwrite leaves about 1.78% upside to new highs before hitting maximum profit.

570 isn't an egregiously low strike either - something like 565 or 560 would be quite bearish for Nvidia's reaction. But 570 allows ample room for Nvidia to rally above 130 in this final push higher.

Moreover, SPY has also seen some single-leg call buying recently in that 570-571 strike range, like the $SPY 20240906 570.0 CALL$  and $SPY 20240913 571.0 CALL$ .

So my read is that the market does want to make one more concerted upside attempt ahead of the next rate cut, with Nvidia's earnings providing the primary catalyst.

$Nvidia (NVDA)$

However, the major institutions have maintained their $NVDA 20240830 130.0 CALL$  overwrite position as of Tuesday's close.

This suggests they still expect Nvidia to top out around 130 following results, though they could certainly look to roll that exposure on Wednesday.

Based on this week's option activity, if those 130 call overwriters do exit, it would open upside to 140 with 110 as the anticipated floor.

In fact, the 130 strike has emerged as the battleground for Nvidia, with a mix of overwriting but also bullish structures like:

Buy $NVDA 20240830 130.0 CALL$ 
Sell $NVDA 20240920 160.0 CALL$ 
Sell $NVDA 20240920 100.0 PUT$ 

A relatively cost-efficient way to finance an upside call spread.

Looking at open interest for the September 20 monthly expiration, call volume is elevated starting from the 130 strike and higher. Put positioning is a bit more balanced with elevated OI at some lower strikes like 97 and 92, but those appear to be part of put spread combinations rather than outright put buying at those panic levels. The most active put strikes aren't alarmingly low either.

So while bullish, my expectations for this event are relatively muted - likely a 110 to 135 trading range. I'll continue holding stock and overwrite some via the $NVDA 20240830 115.0 PUT$ , using longer-dated puts to define my risk.