As the US stock market showed signs of restlessness last week, traders have begun positioning themselves for potential volatility, particularly with Nvidia’s upcoming earnings report on Wednesday. Despite the S&P 500 Index nearing an all-time high and a low Cboe Volatility Index, the underlying sentiment has grown more cautious, as reflected by increased hedging activity and rising demand for volatility options.
The surge in VIX call options — which reflect bets on rising volatility — reached its highest level since September 2023, signaling concerns among investors. Options traders are particularly focused on Nvidia, the AI-powered chip giant, which has become a key driver of market movement. The company’s stock has tripled since October 2023, now valued at $3.3 trillion, making it the second-largest member of the S&P 500. This high market cap and Nvidia’s role in the AI sector have made the broader market more sensitive to its earnings results.
Nvidia’s earnings report could have a major impact not only on its stock but also on the market’s broader volatility. Traders are pricing in a 7.7% move in Nvidia shares after the report, a slightly lower figure than the average post-earnings movement of 9.2% over the last eight quarters. The broader market, as measured by the S&P 500, typically sees a smaller reaction to Nvidia’s earnings, but the stock’s influence on AI-related companies could cause a ripple effect.
Brent Kochuba, founder of SpotGamma, highlighted the potential for Nvidia’s earnings to affect the entire equity market. Options activity spiked ahead of the earnings, with 250,000 VIX calls traded in two large block orders. Analysts are also eyeing additional market catalysts in the coming weeks, including potential tariff news, the expiration of trade suspensions with Canada and Mexico, US jobs data, and a looming government shutdown deadline. These factors could fuel market swings and lead to increased volatility.
With hedge funds heavily short on VIX futures and many S&P 500 companies having already reported earnings, the stage is set for Nvidia’s earnings to bring a fresh wave of uncertainty to the market. Investors are bracing for the potential of a broader volatility spike, especially if any of these upcoming events—such as tariff decisions or macroeconomic data—exceed expectations.
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