Nvidia Options Traders Loading Up on Calls as Earnings Loom

Earnings for NVDA stock will be reported after the close today

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NVIDIA Corporation (NASDAQ:NVDA) is an American chipmaker and currently one of the biggest players in the PC gaming market. The company has assisted Sony and Microsoft with its graphics cards in the PlayStation 3 and Xbox consoles. Over the past few years Nvidia has branched out of the gaming market and begun to tackle new markets like artificial intelligence, car electronics, and mobile devices.

Nvidia stock is up 124% year-to-date, completely ignoring its massive market cap, and is currently just 1.3% off of Sept. 2 all-time high of $589.06. And while the shares have traded sideways since then, they've found support at their ascending 80-day moving average, a trendline not breached on a closing basis since March 24. 

Nvidia Corporation has outperformed earnings expectations on all four of its most recent earnings reports leading up to today's report after the close. In the fourth quarter of 2019, Nvidia beat expectations by 13%%, or $0.21. The company reported an earnings per share (EPS) of $1.78. In the first quarter of 2020, Nvidia increased its quarterly EPS to $1.89. The company beat expectations by a margin of 13% again, or $0.22. In the following fiscal quarter of 2020, Nvidia reported a drop in its EPS down to $1.80, but still managed to beat expectations by 6.5%, or $0.11.

Most recently, the company's quarterly earnings report beat its target by 10.7%. Nvidia reported an EPS of $2.18 instead of the expected EPS of $1.97. This represented a sizable increase in EPS over the company's previous quarter. As for Nvidia's upcoming earnings report tonight, the company is expected to report an EPS of $2.57. If Nvidia meets expectations today, that would signal a significant increase in EPS of $0.39.

In the last five trading days, options traders have been loading up on calls ahead of the quarterly report. The November 600 call is most popular during this time span, and there are also new positions being opened at the November 540 call. With NVDA closing last night at $536.89, buyers of this option are banking on a post-earnings pop from the chipmaker to sustain itself through Friday, then the options expire.

NVDA stock has a forward dividend of $0.64 and a dividend yield of 0.12%. The last dividend Nvidia paid was for $0.16 per share. The company has paid a dividend since November of 2012.

Nvidia is a strong company with a rabid investor following. Nvidia's business model has demonstrated the proactive ability to be constantly adapting and expanding to explore new technological innovations. The company’s revenue demonstrates nice growth, along with an outstanding balance sheet to boot. Nvidia could clear up all of its debt right now and still have more than $3 billion available in cash.

One issue for investors when it comes to considering NVDA stock for their portfolios comes with its high price-earnings ratio of 98.62. A price-earnings ratio is one way for investors to value a company by measuring its current share price relative to its per-share earnings. Like many other tech stocks right now, NVDA stock is trading at an extremely high price. However, the company could potentially see NVDA stock continue its growth at an exponential rate based on recent outperformance. On the flipside, NVDA stock could experience some short-term weakness in NVDA stock price if a market correction occurs down the line.


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