Options traders are bracing for an outsize swing in Nvidia Corp.’s stock price after the chip giant’s earnings report Wednesday afternoon.
So-called straddle prices in the options market can be used to calculate an implied move for an underlying stock. A straddle is an options strategy in which a trader buys a call option and a put option at the same strike price with the same expiration date.
In the case of Nvidia NVDA, +2.03%, the market is pricing in a roughly 11% move in response to the coming earnings, according to Garrett DeSimone, the head of quantitative research at OptionMetrics. He said the average move for Nvidia is between 7% and 8%, “so this is definitely outside the norm.”
The implied move translates to a stock price of about $507 on the upper end and $406 on the lower end, DeSimone told MarketWatch. Someone who employed the straddle would make money if Nvidia’s stock finishes Thursday’s session above the upper point or below the lower point.
Nvidia earnings: What Wall Street expects from the AI-chip giant
There is more at stake with Nvidia’s report than just the company’s own stock price, however, according to DeSimone.
“There’s been a lot of bullish sentiment surrounding Nvidia,” he said. “A lot of market correlation hinges on this.”
More from MarketWatch: How Nvidia’s Jensen Huang may be driving Fed rate-hike expectations
Given a belief that artificial-intelligence fervor has helped power the market higher in the past year, disappointing news “could be the start of something not so great.”
Nvidia is expected to clear its current quarterly revenue record by a wide margin when it delivers results, and demand doesn’t seem to be an issue for the company. Rather, amid rumblings of supply constraints, analysts will be looking to see how the company is striking a balance and gauge management’s expectations for its ability to meet demand for Nvidia hardware.