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NVIDIA Corporation will report earnings after next Thursday's close
Semiconductor stocks are in rally mode today, after Microchip Technology Inc. (NASDAQ:MCHP) said its third-quarter earnings were not as bad as initially projected -- and one name benefiting from the halo lift is NVIDIA Corporation (NASDAQ:NVDA). Specifically, NVDA was last seen 3.3% higher at $19.32, after earlier topping out at an intraday high of $19.49. With its own quarterly earnings slated for release after next Thursday's close, activity in the stock's options pits has hit fever pitch, with the contracts crossing the tape at a rate two times the intraday average.
Based on NVDA's 30-day at-the-money implied volatility (IV), which has jumped 5.8% to 41.6%, short-term contracts are in high demand. In fact, seven out of 10 of NVDA's most active options are of the weekly variety. Those betting on a post-earnings pop are buying to open the equity's weekly 11/7 20.50-strike and 11/14 19.50-strike calls, where a collective 4,200 contracts have changed hands.
Elsewhere, NVDA's most active put is the weekly 11/14 19 strike, where nearly all of the 2,329 contracts traded have done so at the ask price, indicating buyer-driven activity. IV has jumped 8.4 percentage points, and volume outstrips open interest, making it safe to assume new positions are being purchased. Delta for this put is docked at negative 0.42, suggesting a roughly 2-in-5 chance the option will be in the money at the close on Friday, Nov. 14 -- when the weekly series expires. For the sake of comparison, delta on the 11/7 20.50-strike call is 0.29, and 0.48 on the 11/14 19.50-strike call.
Recent history shows NVIDIA Corporation's (NASDAQ:NVDA) price action in the wake of reporting tends to side with bulls, as the stock has averaged a single-session post-earnings gain of 4.1% over the past four quarters. The options market is pricing in a 9.4% post-earnings move this time around, but considering the weekly 11/7 19.50-strike put and call are pricing in roughly equal implied volatilities (69.3% versus 69.4%), it's a toss-up as to which way the action is expected to resolve itself. Regardless, the most any group of option buyers has on the line is the initial premium paid.