5/27-28/25 Live Trading Room Market Recap & Trades
Hans and I will be live after market close for MACRO-TO-MICRO OPTIONS POWER HOUR!
Running The Clock Into NVDA Earnings & Month-End
Tuesday was exciting. Lots of goals scored on that gap up - which I sized up early in my live trading room as likely to be defended, even bid, as USDJPY rose with fave intermarket indicators and option flows, same time US & Japanese yields fell with Gold & especially VIX.
So many hot sectors kept running - nuclear/uranium/data centers; semis/power producers/hyperscalers; space/air taxis/drones; bitcoin/crypto/quantum...
It's doubly hard to get bearish as bulls are clearly in control of the puck and running down the clock until the period ends.
I'm talking a bit of hockey/Stanley Cup, but mostly Nvidia earnings tonight and month-end Friday.
Speaking of NVDA earnings... I have no edge, but I am happy with my $96 - to $136 into earnings - my call for weeks - and happy to chase after the report in either direction.
Lawrence McMilan posted a nice summary of expected moves & the straddle pricing that helps us frame how market is pricing in the results:
"option traders have been overly optimistic about the size of the post-earnings moves for the last seven quarters.
This optimism was probably based on the large gap moves after the February 2023 and May 2023 earnings reports, which produced post-earnings moves of 24.36% and 14.02% -- far exceeding the respective straddle costs of 6.79% and 7.78%.In fact, the current quarter is the first time since then that the straddle has cost so little."
Here are the charts for NVDA Earnings 1-Day Moves and the 1-Day Moves vs. Straddle Price:
In a nutshell, the option market still seems to be overstating the size of the expected move.
That doesn't make it bearish, but it does make it a premium-seller's dream.
Scott Murray of Smashing Volatility also has a chart on market reaction on NVDA's last earnings report...
"Dealers were sellers as the vol evaporated, and traders sold calls, whether to overwrite or take profits. Calls being sold means dealers off the hook and selling the underlying"
Long story short, once the waiting is over, and neither side has scored, it's time to finish the game of month-end.
Expect rebalances and don't be surprised if it results in equity outflows - especially if NVDA reaction is negative in which case CTAs have $7.4B of selling on a down tape this week…. $35B over next month, with corporate buyback blackout hitting June 16th, before FOMC & OpEx for both monthly & quarterly expiration.
For now, SPX tagging 5939 today means it's bullish above, bearish into 5840 with overshoot to 5785. ES <> 5925 is still in play.