Nvidia Corp. (NVDA) is set to report its second-quarter earnings on August 28, and investors are eagerly anticipating another strong performance. The company has consistently exceeded expectations and driven its stock price to new heights. However, the options market is suggesting a more cautious approach.
The semiconductor giant, often seen as a proxy for the artificial intelligence boom, has experienced significant gains following previous earnings reports. Its stock surged 9.3% and 16.4% after the first- and fourth-quarter results, respectively. Given its current price of $129.28, a modest increase of just 5% would break the previous record high.
While the company's historical performance suggests optimism, the options market, often compared to Las Vegas oddsmakers, is offering a different perspective. Straddle options, which profit from large price swings either up or down, are priced in a way that suggests a less dramatic move.
According to Susquehanna analyst Christopher Jacobson, the implied move of a straddle is the weighted average of various potential price movements. Based on recent options pricing, the probability of Nvidia's stock rising to $135 (just below the record high) is estimated at 25%. A move to $137.50 is seen as less likely, with a probability of 22%. For the stock to reach $142.50, a level that would make straddle buyers profitable at current prices, the options market assigns a probability of only 16%.
These probabilities suggest that while a strong earnings report could drive Nvidia's stock higher, the market is expecting a more moderate increase. The options market's pricing reflects the potential for volatility, time until the event, and investor demand.
As with any investment, it's essential to consider multiple perspectives and factors. While Nvidia has a strong track record, the options market's assessment highlights the inherent risks and uncertainties involved in investing.
Betting a pump incoming
Posted Using InLeo Alpha
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