All eyes are on NVIDIA Corporation (NVDA) today. The AI juggernaut is scheduled to announce earnings after the close today. The 1-month implied volatility is not especially high considering the influence this one stock has had on the overall market during the AI boom. One reason monthly options prices are not getting pushed higher could be that NVDA investors are using shorter-term options to prepare for the earnings report.

Option volume for the weekly options expiring this Friday are 365% higher than the volume of the monthly options expiring on December 20th. The high demand for shorter-term options has pushed those options prices to extreme levels. We can use our favorite limited-risk, high-probability strategy to take advantage of the extreme prices and an expected collapse in implied volatility values after the report is made public this afternoon.

This Volatility Term Structure  chart is inverted. The volatility expectations for Friday’s expiration is the highest of any term. Demand for short-term options to hedge or to speculate on today’s earnings report is very high. Short-term options are so expensive that we can get a significant advantage by selling options using our favorite limited-risk, high-probability strategy for a great price.

This MDM graph  compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of NVDA’s prices over the past 4 years (the blue histogram). When this graph shows actual movement bunched up in the middle like this, it tells you that the options on this asset are priced extremely high relative to the stock’s actual history. This stock rarely falls more than 11% over a 3-day period. 

NVDA is announcing earnings today after the close. Investors have pushed short-term options prices to levels that are extreme. When options prices are extreme relative to history it tells us that the options are likely mispriced. The more extreme they are, the greater the mispricing. Mispricing means opportunity to options investors who know what to look for.

To get the specific details and prices on today’s trade idea, be sure to read today’s ODDS Online Daily Option Trade Idea.  

To access Odds Online Daily and be able to see any stock you are tracking in this software, click here.

Thank you,

Don Fishback