The Setup
Nvidia (NVDA) reports later today, and the main question is whether the stock will react the way it usually does after quarterly results. Wall Street expects adjusted earnings of $2.09 per share and revenue above $91.8 billion. NVDA has beaten EPS estimates in 18 of its last 20 reports and revenue estimates in 19 of the last 20. Even with beat-and-raise quarters recently, the stock has sold off afterward.
Data center revenue is one of the biggest numbers investors will watch. Last quarter it topped $75 billion. NVDA is worth more than $5 trillion, so its results can act as a signal for the broader market and the whole AI trade. The stock sits in over 800 different funds plus levered funds. It makes up over 7% of the S&P 500 and over 12.5% of the Nasdaq 100, so it can move markets along with itself. NVDA traded lower today ahead of results.
Why the Numbers Alone Won't Be Enough
The clear leader in AI has not been acting like a leader lately. The published estimates - $2.09 and about $92 billion - will not satisfy the market. A beat and raise is likely, and the reported numbers should look very strong. The stock-moving parts may sit outside EPS and revenue, in what Jensen Huang says at the microphone.
Watch for guidance and several other topics: whether NVDA talks about CPUs and competing with AMD and Intel there; GPUs, where NVDA dominates, and whether any real competition exists. Gross margins need to stay above 75%, and margins below 74-75% could hurt the stock. Also in focus: NVDA's $63 billion portfolio of stakes in Intel, SpaceX, CoreWeave, Nebius, Coherent, Nokia, and Synopsys, and whether Huang names those companies as he has before. Traders will listen for talk on the Vera Rubin chip, the Blackwell roadmap, and the future pipeline.
Growth is the other pressure point. Revenue grew 85% last quarter, with about 97% growth expected this quarter. The $2.09 estimate would mean 99% growth from a year ago. Even 100%-plus growth may not be enough given how high the bar sits. Last quarter NVDA raised its buyback to $80 billion and still fell after reporting blowout numbers and raised guidance.
Other items to track: whether NVDA can take CPU market share from Intel and AMD, and whether it has any bookings there; the financing deal where a group of six major banks provides a $500 billion backstop to create a new asset class within the chip space, and how that is working out; and whether the $75 billion data center revenue keeps strengthening.
The Options Market's View
The option market is pricing in about a plus or minus $12 move in the stock, roughly 5.5%. On a percentage basis that is not a large expected move.
The Bullish Trade: Call Diagonal
The bullish setup treats NVDA as trading $27 off its recent highs. It is a two-week-wide call diagonal, an extension of a normal one-week-wide trade for a slightly longer-term look. Buy the September 11th $210 call at the money (those weekly options expire in 16 days) and sell this week's August 28th $225 call (expiring Friday, in a couple of days). That is a bullish $15-wide call diagonal to the upside.
The cost is about a $7 debit, maybe a little less, so roughly $700 of risk per spread. That is less than half the width of the $15-wide diagonal, because of the difference in implied volatility between the two series. The September 11th $210 call carries about 49% implied volatility on aggregate; the August 28th $225 call being sold carries about 97% implied volatility on aggregate.
The trade needs the stock to rise to at or near $225 for the best result, but anything above about $212-$213 turns a profit, since the debit paid is less than the width. The $225 short strike gives extra room on the upside; a trader less bullish could move that strike closer to the expected move and sell the $215, $222, or $220 call instead. A calendar spread was avoided on purpose, to prevent the pain of being right and having the stock push through the strike; embedding a vertical spread into the calendar handles that.
Because NVDA now has options expiring three times a week - Monday, Wednesday, and Friday - the short option can be rolled to another series over the next couple of days. Collecting more credits on those rolls reduces risk and raises potential profit. This is a directionally bullish position that plays the different volatility levels between what you buy and what you sell. The main danger is the stock falling.
The Bearish Trade: Short Call Vertical
The neutral-to-bearish setup is more passive, given how much the stock can move. It uses the August 28th weekly cycle for short-term positioning: sell the $220 call and buy the $225 call, a $5-wide short call vertical, collecting about a $1.10 credit (maybe near $1.02 now, a little less after the stock pulled back).
That $110 credit is the most you can make, leaving $390 in risk - more risk than reward. The break-even sits near $221.10, where losses start. There is a 74% chance these options finish out of the money.
This works as a speculative position if you think the stock stays below about $220. Because many people hold NVDA, it also serves as a hedge: if you are long the shares, the short call vertical covers some downside if the stock pulls back. Selling a call vertical still keeps your extreme upside - your risk is the width of the strikes minus the credit taken in - and the stock can keep running higher if the move turns explosive, which suits someone who already holds long deltas or long stock in NVDA.
One trade is more aggressive, betting the stock goes higher; the other is more passive on the downside.
