🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

What do Nvidia options cost into earnings?

Published 20/05/2024, 18:30
© Reuters

As Nvidia (NASDAQ:NVDA) approaches its earnings announcement, investors are keen to understand the cost and value of its options. According to a recent analysis by Piper Sandler, Nvidia's near-term options appear slightly overpriced but not excessively so.

Piper Sandler's report focuses on evaluating whether NVDA options are "fair" by comparing their prices to volatility forecasts rather than past volatility. 

For options expiring in one month, implied volatility (IV) stands at 53.77%, which is marginally higher than the "fair value" of 47.09%. This difference is about a 0.66 standard error.

Looking at longer-dated options, the prices align more closely with their fair values, suggesting they are appropriately priced. 

However, Piper Sandler notes a noticeable discrepancy in the cost of upside versus downside protection. 

"IV at 115% (80%) moneyness is about 55.12% (56.23%), whereas it "should be" 47.25% (59.57%), about a 1.1 (-0.18) standard error signal," explains the firm.

This analysis suggests that while Nvidia options are generally fairly priced, there is a slight overvaluation of upside potential. 

In contrast, Piper Sandler said its analysis shows that options for the S&P 500 "remain cheap across the surface," with none of the implied volatility quotes exceeding their fair values. 

Elsewhere on Monday, analysts at Bank of America said Nvidia options are pricing in an 8.5% implied move for Q1 earnings, much lower than the reaction to three of the last five quarters.

"For those worried about the (positive or negative) impact of NVDA earnings on the broader market, NVDA options offer better value than hedging through indices like QQQ, SPY, SMH (Semis ETF), or single names with high sensitivity to the chip giant," they wrote.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.