The pre-earnings squeeze in Nvidia (NVDA) continues, with call volume once again off the charts and implied volatility rising. The squeeze remains firmly in place, and with options expiration tomorrow and earnings next week, it will likely run its course, much like what we saw in most mega-cap stocks following their results.
At least based on my internal models, tomorrow’s expiration should result in a significant amount of gamma rolling off, which could free the stock from this manic move.
Much of the force we are seeing in Nvidia is being amplified across the entire S&P 500, and it is largely mechanical; there is not much that can be done about it. Tomorrow’s OPEX offers a chance for a reset as the May options expire. Open interest in calls has exploded over the past month, sending the option-market put-to-call ratio to a cycle low.
More interesting, of course, is that the VIX really has not fallen very much since the end of April. Instead, the VIX has mostly been stuck in place, which tells us a lot about the current state of volatility and suggests that falling implied volatility has not been the primary driver of this rally.
Even the VIX 1-Day hasn’t fallen meaningfully since the end of April.
The only implied volatility that has moved since the end of April has been S&P 500 constituent-level implied volatility, which has risen right alongside the index itself. Effectively, that is dispersion.
Goes back to what we have been talking about for some time: the rally in the index has been narrow rather than broad-based, and has been driven mostly by speculative call buying. With OPEX tomorrow, many of the reinforcing hedging flows should begin to ease.
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