Tomorrow morning, will NVIDIA options detonate the entire US stock market?

Options trading is heating up, betting on a big change in NVIDIA's stock price after earnings.

In the overnight U.S. stock market, NVIDIA ended its days-long rally before the earnings report was released, falling nearly 7% at one point during the trading day and closing down about 4.4% at $694.52 per share. This dragged down the major stock indices, allowing Amazon and Alphabet-C to surpass NVIDIA in market value once again.

According to media compilation data, the options market is currently pricing in a potential 10.6% fluctuation in NVIDIA's stock price on the first trading day after the earnings report, possibly setting a record for the largest single-day fluctuation ever and causing a $170 billion swing in NVIDIA's market value.

Data from Cboe Global Markets shows that traders are betting on an 11% fluctuation in NVIDIA's stock price from the earnings report release to Friday.

Fueled by the frenzy around artificial intelligence, NVIDIA's stock price surged nearly 240% last year and has risen over 40% so far this year, contributing to about 25% of the S&P 500 index's gains.

Wall Street News previously mentioned that Morgan Stanley believes NVIDIA's earnings report could be a volatility event that influences the direction of the U.S. stock market. They stated that if Q4 revenue exceeds consensus and the future revenue guidance is optimistic, there is still a 5-15% upside potential for the stock.

Christopher Jacobson from Susquehanna International Group stated:

"The significant price fluctuations have made some people worried about valuation, afraid to increase or decrease their positions, but at the same time, they are concerned about missing out on opportunities when the stock price rises again."

"Therefore, many are turning to bullish options with relatively lower risks."

The options market is bullish on NVIDIA, can it live up to expectations?

In recent months, the volume of options trading on NVIDIA has surged, with traders buying bullish options on NVIDIA. The premium for these options is much higher than that for bearish options, indicating that the market is betting on further upside for NVIDIA's stock price.

According to Piper Sandler's data, the nominal trading volume of NVIDIA options was around $500 billion last week, surpassing all other components of the Russell 3000 index.

Other data shows that the outstanding contracts are mostly bullish options in the $1010-1380 range, with some options expiring this weekend, meaning that NVIDIA's closing price this week needs to surge by over 45% from the current level. However, some analysts have warned that due to the current frenzy of bullish options betting on AI stocks such as NVIDIA, after NVIDIA releases its earnings report, the implied volatility of the entire options market may decrease. This could lead to a drop in the prices of call options for NVIDIA-related stocks, triggering a market pullback.

Data compiled by Susquehanna shows that there is still a 25% option bet in the market, predicting that NVIDIA's closing price on Friday will either drop by 10% to $620 or rise by 22% to $850.