Investors predict a volatile week for Nvidia, with risks outweighing potential gains after earnings
According to Larry Berman's opinion piece in BNN Bloomberg, the expectations surrounding Nvidia Corp.'s (NVDA) earnings report this week can be gauged by analyzing the pricing of an at-the-money straddle.
As of early Monday, NVDA was trading between US$129 and $130. The $129 calls were priced at 7.30, while the $129 puts were at 6.90, resulting in a total of $14.20.
This pricing suggests that investors anticipate about an 11 percent movement in either direction this week, with these options set to expire at 4:00 pm on August 30.
A chart accompanying the article illustrates the past three earnings reports (marked with green E), the 12-month forward-based consensus (solid thick red line), the rising 200-day average (thin black line), and the $14.20 options-based post-earnings price range (dotted blue line).
The chart suggests that it may be more prudent to buy on dips rather than chase breakouts, especially given that NVDA's performance following earnings over the past year has been inconsistent.
In November 2023, NVDA’s stock surged ahead of earnings, only to sell off for about two weeks after beating estimates. In February 2024, the stock initially pulled back before rallying strongly for two weeks post-earnings, eventually retracing back to the earnings price gap over the following month.
In May 2024, the stock, near an all-time high, saw a significant rise before filling the breakaway gap in early August.
Berman suggests that if NVDA gaps up by 11 percent to new highs, it needs to sustain that momentum for a few weeks; otherwise, a sharp correction due to profit-taking is likely on a failed breakout.
Conversely, if the stock gaps down, it may face more downside risk, potentially returning to August lows with no clear support around the 11 percent area.
He notes that risks appear more skewed to the downside, given that NVDA's rising 200-day average has not been tested since the market breakdown in 2022. NVDA is currently trading at 47 times its projected 2025 earnings per share (EPS) of 2.71.
Among analysts, the most bullish targets range from 175 to 180, while the most bearish see a range of 90 to 100. There are 66 buy ratings, eight hold ratings, and no sell ratings for the stock.
