NVDA Earnings Popped the Stock and the Markets to Fresh All Time Highs

Tom Gentile

Posted in
Education

By: Tom Gentile
February 23rd, 2024

4 mins read

A Lesson in Options Implied Volatility

This is what happened on Thursday, February 22, 2024.

But there is an options lesson in here to discuss.

I have written how one can assess a potential rice and percentage move higher or lower on a stock on their earnings announcement. Take the current or near term At the Money option for both the call and the put option and add them together and that is the amount the market makers have priced in for the expected move.

The thing to also consider if you are going to consider trading the At the Money options for that pop or drop, one has to be aware that Implied Volatility of the options can affect the price of the options so even if one gets the anticipate move, the concern of Implied Volatility for those options dropping might not make the Straddle option trade that profitable after all.

The rush in IV before the announcement is called an IV Rush and a drop in IV after the announcement is know as an IV Crush.

What is an Options Implied Volatility (IV)?

As written in www.investopedia.com… Implied volatility is the market’s forecast of a likely movement in a security’s price. It is a metric used by investors to estimate future fluctuations (volatility) of a security’s price based on certain predictive factors.

The following images will show you the stock (NVDA) at the close of market the day earnings were to be announced after the market close.

You can see in Figure 1: The stock closed at $674.72.

Figure 2: Shows the Implied Volatility (IV) as a percentage over different time frames on the one image. The red line is what I focus on and that is the shortest-time frame IV, the 7-30 day.

Figure 3 Shows the chart on NVDA at the close the day of trade after the earnings announcement for it the night before.

Figure 4: This is the image of the same IV image for NVDA, but at the close the day after. Notice the drop in IV after the earnings announcement has taken place.

NVDA Closed 2/21 674.72.  Opened 2/22 750.25.  That is a difference of $75.53, which was a price spike of 12%. Not quite the assessed 13% done at the time of the article written on Feb. 21, but close. 

Figure 1: NVDA Close Price 2/21/2024 $674.72
Figure 1: NVDA Close Price 2/21/2024 $674.72
Figure 2: NVDA 7-30 Day IV 2/21/2024
Figure 2: NVDA 7-30 Day IV 2/21/2024
Figure 3: NVDA Gap Up and Open at $750.25 2/22/2024
Figure 3: NVDA Gap Up and Open at $750.25 2/22/2024
Figure 4: NVDA 7-30 Day IV 2/21/2024 Day After Earnings Per Share Announcement
Figure 4: NVDA 7-30 Day IV 2/21/2024 Day After Earnings Per Share Announcement

The IV the day of earnings was up in the 90+% area before closing at 69%. Earnings were announced that night ‘after market close’ and the next day the straddle’s IV closed at 44%.

The Straddle Option trade would have been profitable even after a 25% drop in Implied Volatility!

Here is the option image I showed on original article about the cost of the March 15, 2024, $665 Straddle…

Image 9

And here is the image of that Straddle’s pricing at the close the following day.

Image 10

The below image will put the numbers in a clearer view.

Image 11

A 47% ROI this time.

The Lesson on IV in This Example

The lesson here is: Know that options will likely experience an IV ‘Crush’ after the earnings are announced.

You either want to open an options trade with the intent to close it out before the announcement where you take advantage of the IV ‘Rush’ that tends to happen before the announcement, OR you better have the stock move enough In the Money to offset the IV Crush and get that trade profitable, like it did this time with NVDA.

Just think how profitable the straddle could have been had it not had the IV Crush.

Tom Gentile
C1P: Chief 1-Percenter

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