How I'm Trading Nvidia's Earnings Using My PFP System

Nvidia (NVDA) beat sales estimates but missed on EPS after Wednesday's close, with positive forward guidance initially boosting the stock. Options market data analysis indicates a top gamma strike (TGS) at $140, with upside targets at $145 and $150 and downside targets at $135 and $130. Bullish options flows, particularly in longer-dated contracts, suggest further upside potential if NVDA closes above $140, while a close below this level would weaken the bullish outlook.

Analysis

Nvidia (NVDA) recently reported earnings, surpassing sales expectations but falling short on earnings per share. Despite the mixed EPS result, the company issued positive forward guidance, leading to an initial stock price increase from approximately $134.88 to around $141.35. Options market analysis, based on the PFP system, indicates a significant concentration of call gamma relative to put gamma, which is characteristic of a stock with strong upward momentum, evidenced by NVDA's nearly 22% gain over the last year and 1,477% over the last five years. The $140 strike price is identified as the top gamma strike (TGS), acting as a pivotal level. A close above $140 is seen as bolstering the upside case, potentially targeting the top call strikes of $145 and $150, while a close below $140 would weaken this outlook, with $135 and $130 identified as top put strikes or bear targets. Post-earnings options flows have been robust and bullish, with institutions actively trading shares and options traders buying calls (approximately $281 million in notional deltas) and selling puts (approximately $100 million in notional deltas). While 57% of these option flows are short-term, expiring on the immediate Friday, a significant 43% extend further, with two-thirds of puts sold on Thursday expiring after Friday, suggesting sustained bullish sentiment. The price action showed an initial impulsive move higher post-earnings, followed by corrective behavior that suggests further upside potential, with the $140 TGS holding on its first test. Volatility for NVDA options 2-3 weeks out was noted as underpriced.

Key Decisions for Investors

• Investors should closely monitor NVDA's ability to close and hold above the $140 level, as this is presented as a key technical support for a continued move towards the $145 and $150 upside targets.
• Consider the bullish sentiment indicated by options market flows, particularly the net buying of calls and selling of puts, including longer-dated contracts, which suggests institutional conviction in further upside beyond the immediate term.
• Evaluate strategies that could benefit from potentially underpriced volatility in NVDA options for expirations 2-3 weeks out, or be cautious of this factor if implementing volatility-sensitive positions.
• Acknowledge the mixed earnings report (sales beat, EPS miss) but weigh it against the positive forward guidance and the market's bullish interpretation reflected in options positioning and price action.