What are your options - NVidia - earnings release - potential market reactions
Koen Hoorelbeke
Investment and Options Strategist
Summary: Explore the potential market reactions to Nvidia's upcoming earnings release in this guide. From considerations before the release to understanding various market dynamics post-announcement, this article provides a selection of options strategies tailored for different outlooks. Whether bullish, neutral, or bearish, discover defined and undefined risk strategies that might align with your perspective.
Nvidia earnings release: potential market reactions
Before the earnings release: some considerations
- Stock valuation: some investors may evaluate Nvidia's valuation, and considering a reduction in holdings if current price deemed (to) high. This can be done by either just selling some stock, or for the investor with options knowledge, unload them by selling ITM calls and optimize their profits along the way.
- Protective measures: others, optimistic long-term but concerned short-term, might explore a modified collar strategy for protection where we protect the downside using a put vertical spread.
- Pre-earnings trade: experienced traders could consider setting up a volatility-collapse strategy prior to the earnings to fully exploit the effects right after the earnings. This can be done either with an short iron condor or a short strangle. However due to the extreme expectations and very high implied volatility (see chart below), this should only be done by traders who have ample experience in this area.
Post-earnings release: understanding potential market dynamics
Bullish outlook strategies:
- Long call (defined risk)
- Poor man's covered call (defined risk)
- Short put (undefined risk)
- Covered call (defined risk)
- Long call vertical spread (defined risk)
- Short put broken wing butterfly (defined risk)
- ...
Neutral outlook strategies:
- Short strangle (undefined risk)
- Short straddle (undefined risk)
- Short iron condor (defined risk)
- Short dynamic width iron condor (defined risk)
- Short iron fly (defined risk)
- ...
Bearish outlook strategies:
- Long put (defined risk)
- Short call (undefined risk)
- Short call vertical spread (defined risk)
- Long put vertical spread (defined risk)
- Short protective collar (defined risk)
- ...
1. Bullish outlook example: short put broken wing butterfly
2. Neutral outlook example: short iron condor (defined risk)
3. Bearish outlook example: short protective collar (defined risk)
- Own 100 Shares of Nvidia: This is the underlying position being protected.
- Sell to Open 1 Call: Expiry 20-Oct-23, Strike 535 (cap on potential upside gains).
- Buy to Open 1 Put: Expiry 20-Oct-23, Strike 360 (protection against a downside move).
- Sell to Open 1 Put: Expiry 20-Oct-23, Strike 290 (additional premium, further downside risk).
- Premium (USD): 1260 (Net premium received).
- Max Risk: Limited to the difference between the stock's purchase price and the 290 strike, less the premium received. If the price goes above 535, shares will be sold at that price (caps profits to the upside)
- Max Profit: Limited to the difference between the 535 strike and the stock's purchase price, plus the premium received, minus the call's purchase price.
- Probability of Profit (POP): 69.18%
- Implied Volatility (IV) Rank: 97.06
- Days to Expiration (DTE): 59
- Delta Position: -0.4048
- Theta Position: 0.2