- NVIDIA’s first-quarter results this week could move the entire stock market.
- The company’s soaring sales and profits have driven much of the S&P 500’s earnings growth over the past year.
- Bank of America shared how investors can avoid the risk that NVIDIA’s earnings will shake up the entire market.
All eyes are on NVIDIA this week as it prepares to release its first quarter results after the closing bell on Wednesday.
A semiconductor maker’s earnings report can move the stock market significantly, either upward or downward, depending on the outcome.
Current option pricing suggests Nvidia could rise or fall by 8.5% post-earnings. This is significantly lower than his previous Nvidia earnings release, which had options traders suggesting a 14% to 26% move.
american bank
That’s because Nvidia and its successful lineup of AI-focused GPUs are having a huge impact on S&P 500 revenue growth. Over the past 12 months, Nvidia’s revenue growth drove 37% of the S&P 500’s earnings per share growth. However, over the next 12 months, Nvidia’s earnings growth is expected to drive only 9% of the S&P 500’s earnings growth.
The move highlights the potentially market-shaking impact Nvidia could have on the broader stock market this week, and Bank of America has ways to hedge against the risk.
Instead of buying put and call options on major indexes such as the S&P 500 and Nasdaq 100, Bank of America is encouraging investors to buy call and put options on Nvidia itself. Recommended.
In other words, if an investor believes the stock market will decline this week following Nvidia’s earnings results, they should buy Nvidia put options instead of buying put options on the S&P 500 or Nasdaq 100. In such cases, you should buy call options. They believe the stock market will rise.
“For those concerned about the impact (positive or negative) of NVDA returns on the overall market, NVDA options offer better value than hedging through indices such as QQQ, SPY, and SMH (semi-ETFs). ” Bank of America said.
The bank said this is because NVIDIA options cost less than options on the broader index, likely due to strong liquidity and trading interest in the AI giant.
“Don’t mess with proxies, hedge with NVDA options,” Bank of America said.
