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Subscribe →The pre-earnings squeeze in Nvidia continues, with call volume once again off the charts and implied volatility rising. The squeeze remains firmly in place, and with options expiration tomorrow and earnings next week, it will likely run its course, much like what we saw in most mega-cap stocks following their results.
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At least based on my internal models, tomorrow’s expiration should result in a significant amount of gamma rolling off, which could free the stock from this manic move.
Much of the force we are seeing in Nvidia is being amplified across the entire S&P 500, and it is largely mechanical; there is not much that can be done about it. Tomorrow’s OPEX offers a chance for a reset as the May options expire. Open interest in calls has exploded over the past month, sending the option-market put-to-call ratio to a cycle low.
More interesting, of course, is that the VIX really has not fallen very much since the end of April. Instead, the VIX has mostly been stuck in place, which tells us a lot about the current state of volatility and suggests that falling implied volatility has not been the primary driver of this rally.
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Even the VIX 1-Day hasn’t fallen meaningfully since the end of April.
The only implied volatility that has moved since the end of April has been S&P 500 constituent-level implied volatility, which has risen right alongside the index itself. Effectively, that is dispersion.
Goes back to what we have been talking about for some time: the rally in the index has been narrow rather than broad-based, and has been driven mostly by speculative call buying. With OPEX tomorrow, many of the reinforcing hedging flows should begin to ease.
-Mike
Glossary by ChatGPT
- Dispersion — A market condition where individual stock volatility diverges from index-level volatility, often reflecting concentrated stock-specific moves.
- Gamma — A measure of how quickly an option’s delta changes relative to movements in the underlying asset price.
- NVIDIA Corporation — A semiconductor and AI computing company widely traded in equity and options markets under the ticker NVDA.
- OPEX — Short for options expiration, the date when listed options contracts expire.
- Open Interest — The total number of outstanding derivative contracts, such as options or futures, that remain open.
- Put-to-Call Ratio — A sentiment indicator comparing the volume or open interest of put options to call options.
- S&P 500 — A benchmark index tracking 500 large-cap U.S. companies.
- VIX — The CBOE Volatility Index, commonly used as a gauge of expected market volatility.
- VIX 1-Day — A short-duration volatility index measuring expected one-day volatility in the S&P 500.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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