Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are +50bps higher after yesterday’s selling. NVDA ER is on tap for tonight.

TLDR: The only trade we really see here, outside of those 3-6 month puts posted last week, is short dated index call spreads. This would play a positive reaction to upcoming events, and we think the “soft spot” for the market is now playing a rally.

Yesterday morning finally felt like “that moment” where consolidation threatened to turn into capitulation, but once again that ~5,950 area held. SPX now faces stiff resistance at 6k ahead of NVDA ER, tonight, followed by econ data tomorrow and PCE/Ukraine Friday. These data prints, if bad, could finally break the market through that stiff 5,900 – 5,950 support into a nasty short vega complex (see y’day note).

There are, of course, two sides of the coin. As you can see in the chart above, each test of this area has led to vicious ~3% rallies. Further, buying puts with the VIX sniffing 20 is generally not a profitable strategy, particularly into 3 days of events which are generating some event volatility. One can easily make the case for a huge vanna-rally off of clean NVDA earnings & some benign (or even positive) data points on Thur/Friday.

Does the market really care about NVDA? Yes.

Its usual for there to be an SPX vol premium for a single stock earnings, but that is something that NVDA can generate, as shown below.

The implied NVDA ER move is ~8.5%, and we eye post-ER resistance at 140 (+10% from spot) and support 115-120 (-8%).

The thing that stands out for NVDA is that traders have bid up puts (red), and sold off calls (blue). This is the mirror image position from what we saw for nearly all of 2024, when traders were falling over themselves to get long NVDA & semis. We can rarely bring ourselves to hold a long option position through an earnings event, and so the only trades for NVDA specifically that would be interesting (to us) is some type of put selling.

We think the way to play a solid NVDA earnings report is to get long QQQ or maybe even SMH call spreads. If you consider a long play, we focus on spreads as there is likely to be a IV contraction on any post-event stock move higher.

The other thing that is interesting about NVDA is that it is/has been pretty stable after the DeepSeek news. You can see this via 10-day realized vols which are at levels that have often corresponded to NVDA price lows (if you use a longer RV window you catch the -20% DeepSeek event). You could therefore make the case that dip buyers are there if/when NVDA tests the 115 area. Terrible earnings could of course change this paradigm (i.e. break 115 support), but we’ve got not “fundamental analysis”/prediction to offer.