In November, following the USA elections and the Federal Reserve meeting, the market has once again entered a critical trading time point, with global attention focused on $NVIDIA (NVDA.US)$ The company announced that it will release its financial report after the market closes on Wednesday Eastern Time.

Since the explosion of global AI demand by OpenAI in November 2022, nvidia's stock price has soared continuously, with a market cap surpassing 3.5 trillion USD, overtaking apple to become the stock with the highest total market cap and being dubbed the 'most important stock on Earth.' At the same time, nvidia has also become a component stock of the dow jones industrial average.

Given the significance of this stock's financial report, some investors seem to be prepared for a major shock. The options market predicts that nvidia's stock price will have a volatility range of 9.8%, while nvidia has remained above the lower limit of the expected volatility range after 6 financial reports.

If we assume that the volatility range is within market expectations and the post-earnings stock price reaction trends positive, how can we construct Options strategy.?

Bull market put option spread strategy.

On Tuesday, nvidia's closing price was $147.01, taking the at-the-money option expiring on November 22 as an example, it is expected to have a volatility of 9.8%.

Now it is necessary to build a bull market put option spread strategy with a break-even price approximately 9.8% lower than the stock price: sell the put option with a strike price of $135 expiring on November 22 (selling price $1.72), and buy the put option with a strike price of $130 (buying price $0.95).

This option combination would be priced at approximately $1.72 - $0.95 = $0.77 when it expires on Friday, which means that investors in this spread strategy would receive $77 in option fees, of course, the maximum risk is losing $423.

If nvidia's stock price remains above $135, a profit of $77 will be realized from now until the expiration date of November 22, which represents a risk return rate of 77/423*100% = 18.2%. If nvidia’s closing price is below $130 on the expiration date, this trade will incur a loss of $423.

The break-even point for the bull market put option spread strategy is $134.23, which is $135 minus a total premium of $0.77 per contract.

This short-term trading based on earnings reports has little adjustment space; obtaining an 18.2% return in a few days is decent, but there is also a possibility of a 100% loss. However, this style of trading is only suitable for traders with a high risk tolerance.

The clever use of nasdaq 100 ETF options provides a low-cost hedge against nvidia volatility.

Direct hedge. $NVIDIA (NVDA.US)$ Stocks are not cheap. Based on past performance disclosures, stock prices have shown significant volatility, and investors should maintain a cautious attitude. Especially in light of the recent retreat of optimism following the elections, the market's vulnerability is even more pronounced.

$Invesco QQQ Trust (QQQ.US)$ The hedging strategy displays investors' concerns in response to the upcoming nvidia earnings report; the hedging strategy for nasdaq 100 reflects a cautious investor mindset. These trends further highlight the impact of nvidia's performance on the entire market.

Bank of America proposed utilizing.$Invesco QQQ Trust (QQQ.US)$ The put spread strategy indicates that an investment of just 51 dollars could yield a potential return of 17 times in the event of a decline.

Buy the bear put spread with options expiring on November 22: sell the Put with a strike price of 480 dollars, buy the Put with a strike price of 490 dollars. Traders will spend 51 dollars to hedge and could earn a maximum profit of 949 dollars during a significant drop in the nasdaq 100.

The hedging strategy of the nasdaq 100 demonstrates that the market is aware of the risks of relying on a single variety. At the same time, it highlights the current situation in which investors are seeking various means of risk diversification, seen as a way to mitigate the risks of directly investing in specific varieties.

It is worth noting that options trading carries significant risks, including the potential to lose principal. For options beginners, it is recommended to participate cautiously in trading after fully understanding the relevant knowledge.

How to easily navigate earnings season? Futu options tools help you!

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Risk warning

Options are contracts that give the holder the right, but not the obligation, to buy or sell an asset at a fixed price on or before a specific date. The price of options is influenced by various factors, including the current price of the underlying asset, the strike price, the expiration date, andImplied volatility。

Implied volatilityReflecting the market's expectations for the future volatility of options over a period of time, it is data derived from the option BS pricing model, generally considered as an indicator of market sentiment. When investors anticipate greater volatility, they may be more willing to pay higher prices for options to help hedge risks, thereby leading to higher.Implied volatility。

Traders and investors use Implied volatilityto evaluateoption pricesof the attraction, identify potential mispricing, and manage risk exposure.

Disclaimer

This content does not constitute an offer, solicitation, recommendation, opinion, or guarantee of any securities, financial products or instruments. The loss risk of buying and selling options could be substantial. In certain circumstances, you may suffer losses exceeding the amount initially deposited as margin. Even if you set up backup instructions, such as stop loss or limit instructions, losses may not be avoided. Market conditions may render such orders impossible to execute. You may be required to deposit additional margin in a very short period of time. If the required amount cannot be provided within the specified time, your open contracts may be closed. However, you are still responsible for any shortfalls in your account arising from this. Therefore, before buying or selling, you should research and understand the options, and consider carefully whether such trading is suitable for you based on your financial situation and investment objectives. If you buy or sell options, you should be familiar with the exercise of options and the procedures at expiration, as well as your rights and obligations when exercising an option or at expiration.

Editor/Rocky