Prior to Nvidia's Earnings Report: Market is Chase and Quietly Hedging

The market's anticipation for Nvidia's financial report is increasingly translated into a vigilance for downside risks.

Nvidia is set to release its financial report after the US market closes on Wednesday, and the signals from the options market are intriguing—investors are chasing gains while simultaneously buying a large amount of protective positions, such a rare parallel development, suggests that an unconventional volatility may be brewing.

Options Movement: Implied Volatility and Stock Price Rise Synchronously

Brent Kochuba, founder of derivatives analysis firm SpotGamma, points out that the implied volatility and implied volatility ranking of several semiconductor stocks and tech ETFs are both at historically high levels.

The VanEck Semiconductor ETF (SMH) has an at-the-money implied volatility of 46.97 with an IV Rank of 92.59;美满科技 has an implied volatility of 96.45; Micron Technology and Western Digital, among others, also have IV Ranks exceeding 80.

Implied volatility typically has an inverse relationship with the price of the underlying asset. Kochuba noted, "When both rise in tandem, traders are chasing upside while paying a premium for protection, which is a signal that the market is preparing for expanded volatility."

"At a broader market level, the VIX 'fear index' has continued to rise over the past two weeks, rising in tandem with the S&P 500 index—this unusual combination is seen by some market participants as a sign of proactive hedging."

Q4 Earnings Season Coming to an End, Macro Pressure Returns to View

The Nasdaq Composite recorded its first back-to-back decline since March on Monday, with the high-flying semiconductor sector under pressure and software stocks performing against the trend, signaling the beginning of sector rotation.

Art Hogan, Chief Market Strategist at B. Riley Wealth, warned that during the earnings season, investors' attention often shifts from macro to individual stocks, while the macro variables that drove the market are accumulating stealthily.

"Investors have been turning a blind eye to inflation signals and ignoring warnings from the yield curve of U.S. Treasuries, and the 10-year U.S. Treasury yield has already broken through 4.5%, with further upward momentum."

Institutions such as Bespoke Investment Group believe that Walmart's earnings report on Thursday will mark the unofficial end of this strong earnings season, and once the good news is fully priced in, the market lacking new positive catalysts will be more exposed to macro pressures.

Nvidia May Become the Key Moment to Test the Quality of This Round's Rebound

Nvidia has always been one of the few individual stocks that can influence the overall market trend, and its financial report has a significant contagion effect on the semiconductor and even the entire tech sectors.

Kochuba pointed out that if a large number of investors holding Nvidia call options rush to take profits after the financial report, it could trigger systematic selling pressure at the market level, not just at the individual stock level. Hogan also noted that the financial report this time could replicate the "sell the news" trend of the last quarter.

That's where the market's delicacy lies now, with bullish sentiment coexisting with defensive needs, positions at historical highs, and macro pressures resurfacing. At this sensitive juncture at the end of the earnings season, Nvidia's performance release on Wednesday may become the first test of the true quality of this round's rebound.