Countdown to a major shock in the US stock market? NVIDIA's earnings report may open the "Pandora's Box" as traders hedge risks in advance
The US stock market has recently experienced a large-scale sell-off, with traders preparing for market turbulence. NVIDIA is about to announce its earnings report, which may trigger greater volatility. Analysts warn that market volatility will increase in the coming weeks, especially against the backdrop of tariffs and a government shutdown. NVIDIA's stock price has doubled since October 2023, becoming a major component of the S&P 500, and it is expected that the stock price volatility will reach 7.7% after the earnings report
According to Zhitong Finance APP, last Friday, U.S. stocks experienced the largest sell-off in two months, breaking the surface calm of the market. Although the S&P 500 index hovered near historical highs and the VIX volatility index remained well below the five-year average, undercurrents had already begun to surge, with some traders even preparing for turbulence in advance.
Last week, the ratio of open VIX call options to put options approached the highest level since September 2023, with over 1 million call options changing hands on Tuesday.
Rising Demand for Protective Options
Investors are starting to increase their bets that volatility will return, as NVIDIA (NVDA.US) is set to announce its earnings after the market closes on Wednesday, which could be just the beginning of a series of fluctuations. While U.S. President Donald Trump’s return to the White House and his tariff remarks have not yet caused panic among traders, warnings from analysts, from Charlie McElligott at Nomura Holdings to Scott Rubner at Goldman Sachs, are becoming increasingly loud.
Brent Kochuba, founder of the options platform SpotGamma, stated, “NVIDIA has the potential to impact the entire stock market.” More broadly, he noted, “There are many catalysts that could drive volatility up in the coming weeks, including tariffs and the deadline for the U.S. government shutdown.”
Driven by the AI boom, NVIDIA has more than doubled since its low in October 2023, becoming a giant with a market capitalization of $3.3 trillion. This surge has made NVIDIA the second-largest component of the S&P 500 index, making the broader market more susceptible to fluctuations in this stock.
Since releasing its last earnings report in November of last year, NVIDIA's stock price has been volatile, and the plunge triggered by the Chinese AI startup DeepSeek has heightened concerns. As of last Friday, options traders expected NVIDIA's stock price to fluctuate by 7.7% following the earnings announcement, while the average price change in the past eight quarters after earnings reports was 9.2%. The average volatility of the S&P 500 index during these days was 0.8%, higher than the 0.6% daily average volatility over the past two years.
Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, stated, “NVIDIA's earnings report and any subsequent volatility will certainly trigger broader fluctuations. Whether NVIDIA's earnings exceed or fall short of expectations will have a ripple effect on AI and related companies.”
In addition to NVIDIA, there are a series of catalysts in the coming weeks that could stimulate market volatility again. Trump's suspension of new tariffs on Canada and Mexico is set to expire on March 4. Investors will see the latest U.S. employment data three days later, and March 14 is the deadline for reaching an agreement to avoid a U.S. government shutdown.
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, remarked, “If truly impactful tariff news is broadly negative and the stock market begins to fluctuate in sync or highly correlated, we will definitely see volatility soar ”
