NVIDIA做多
Navigating NVIDIA Earnings Led Volatility with S&P 500 Options
NVIDIA will announce its Q2 2025 results on 28th August. The semiconductor giant is expected to deliver USD 28.6 billion in revenues. Even a mild shortfall can send its stock prices tanking. The firm is slated to scale even greater heights on continued AI hardware demand & explosion in data centres.
ANALYSTS REMAIN BULLISH
NVIDIA enjoys buy rating with 12-month price targets ranging from USD 90 to USD 200 per share across 52 analysts.
Forty-seven analysts have strong buy rating followed by nine buys and five holds based on 61 analysts issuing ratings over the last three months.
The firm has a commanding position in the AI-driven chip market. Booming demand for GPUs in data centres and cloud computing serve as relentless tail winds.
NVIDIA EXPECTED TO DELIVER INCREDIBLE RESULTS ON GROWING AI DEMAND
AI demand is palpable. This demand is vindicated by eye popping financial performance. Few can deliver higher earnings without comprising margins. NVIDIA has crushed both.
Its revenues have risen 5.6x since 2019 while its net income has risen 10.6x during the same period. Its net income margins have expanded two-fold from 25.6% to 48.9% in the same time frame.
Little surprise that its shares are up 162.71% so far this year far surpassing S&P 500, Nasdaq 100, and other mega caps.
NVIDIA IS EXPECTED TO EXTEND ITS DOMINATION
Tech firms are in early stages of AI hardware adoption, driving demand for NVIDIA’s chips. Its data center business is a key revenue driver, benefiting from growing AI workloads.
NVIDIA’s AI GPUs are crucial for machine learning and neural network tasks. GPUs will contribute to 40% of its total revenue in 2024.
The firm continues to expand its CUDA software ecosystem. CUDA enables developers to optimize AI workloads. Combination of hardware and software makes its ecosystem extremely sticky. It locks in developers & clients contributing to long-term revenues.
Furthermore, NVIDIA’s long-term roadmap includes innovations in AI chips designed for specific tasks, such as inferencing and deep learning, areas where its competitors have struggled to gain traction.
RECAPPING NVIDIA’S RECORD SHATTERING Q1 2025 EARNINGS
The firm delivered record quarterly revenues of USD 26 billion (up 18% QoQ & 262% YoY), primarily driven by a 427% surge in Data Center business. Its net income of USD 14.88 billion and diluted EPS of USD 5.98, marked 21% and 629% increase respectively YoY. The gross margin rose to 78.4%, up 2.4% QoQ & 13.8% YoY.
The firm also announced ten-for-one forward stock split effective 7th June. It increased quarterly dividend by 150% to $0.10 per post-split share. On such stunning results, its share prices rose 9.3% after announcement.
Even though NVIDIA share prices have risen, its price-to-earnings ratio have come off thanks to even sharper rise in its earnings.
The price paid for each dollar of earnings is cheapest over the last eight quarters based on P/E ratio. The P/E ratio is down to 51x as of Q1 2024 compared to 144x as of Q1 2023.
EARNINGS SURPRISES & SHOCKS AND ITS IMPACT ON STOCK PRICES
NVIDIA’s quarterly earnings has crushed expectations 21 out of the last 22 quarters since 2019. Beating earnings has become par for the course for this firm. Even mild shocks can cause tremors in its share prices.
It is no surprise then that the 12-month rolling beta of the firm is 2.78x making it highly volatile. Beta measures share price sensitivity to the overall market. It quantifies price moves of a stock to the broader index.
BETA HEDGING NVIDIA STOCKS WITH S&P 500 MICRO INDEX OPTIONS
Portfolio Managers holding NVIDIA stocks can cleverly use deeply liquid CME Micro E-Mini S&P 500 Index Options (CME Micro S&P 500 Options) to hedge against potential earnings linked price shocks.
Holding NVIDIA shares while hedging the holding via CME Micro S&P 500 Put Options helps to build effective portfolio resilience.
Investors are assumed to hold one-hundred shares for illustration. The notional value of NVIDIA shares is calculated using close of market price on 23rd August.
Trading View publishes twelve-month rolling beta for each stock. It can be used for calculating the required number of S&P 500 index puts to hedge against downside price risk.
We suggest adjusting the beta upwards (“Earnings Linked Beta”) by 50% to cater for earnings linked excess volatility.
The notional value of options is calculated using Earnings Linked Beta. Two lots of CME Micro S&P 500 Options are required to hedge 100 NVIDIA shares.
The table below demonstrates overall Beta Hedged P&L based on various price scenarios for NVIDIA share prices and S&P 500 futures price after earnings.
Single stock options can be used to hedge. The cost of hedging using them would be expensive due to elevated IV levels during earnings. Investors must balance cost savings against basis risks.
Please note that beta hedging involves basis risks. If the stock and index prices fail to move in tandem as expected, then beta hedge may not provide adequate protection from adverse price moves.
The table below illustrates Beta Hedged P&L if index moves in a muted manner which is unlikely.
The table below illustrates Beta Hedged P&L if index moves inversely to NVIDIA share prices. This scenario is a highly unlikely but is included for clarity of understanding and illustration purposes only.
Investors can consider exploiting elevated implied volatility in NVIDIA options by selling calls to partly fund the purchase of index put options.
By selling a 25-delta options expiring on 30th August, the investor creates a covered call strategy on the underlying NVIDIA stocks. A 25-delta call translates to a 142 strike and the last traded price on 23rd August was USD 2.70 per share. Investors can view up-to-date pricing sheets along with various options analysis tools on CME QuikStrike.
The P&L of beta hedge plus covered call assuming expected index moves is as shown below:
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
ANALYSTS REMAIN BULLISH
NVIDIA enjoys buy rating with 12-month price targets ranging from USD 90 to USD 200 per share across 52 analysts.
Forty-seven analysts have strong buy rating followed by nine buys and five holds based on 61 analysts issuing ratings over the last three months.
The firm has a commanding position in the AI-driven chip market. Booming demand for GPUs in data centres and cloud computing serve as relentless tail winds.
NVIDIA EXPECTED TO DELIVER INCREDIBLE RESULTS ON GROWING AI DEMAND
AI demand is palpable. This demand is vindicated by eye popping financial performance. Few can deliver higher earnings without comprising margins. NVIDIA has crushed both.
Its revenues have risen 5.6x since 2019 while its net income has risen 10.6x during the same period. Its net income margins have expanded two-fold from 25.6% to 48.9% in the same time frame.
Little surprise that its shares are up 162.71% so far this year far surpassing S&P 500, Nasdaq 100, and other mega caps.
NVIDIA IS EXPECTED TO EXTEND ITS DOMINATION
Tech firms are in early stages of AI hardware adoption, driving demand for NVIDIA’s chips. Its data center business is a key revenue driver, benefiting from growing AI workloads.
Source: Statista
NVIDIA’s AI GPUs are crucial for machine learning and neural network tasks. GPUs will contribute to 40% of its total revenue in 2024.
The firm continues to expand its CUDA software ecosystem. CUDA enables developers to optimize AI workloads. Combination of hardware and software makes its ecosystem extremely sticky. It locks in developers & clients contributing to long-term revenues.
Furthermore, NVIDIA’s long-term roadmap includes innovations in AI chips designed for specific tasks, such as inferencing and deep learning, areas where its competitors have struggled to gain traction.
RECAPPING NVIDIA’S RECORD SHATTERING Q1 2025 EARNINGS
The firm delivered record quarterly revenues of USD 26 billion (up 18% QoQ & 262% YoY), primarily driven by a 427% surge in Data Center business. Its net income of USD 14.88 billion and diluted EPS of USD 5.98, marked 21% and 629% increase respectively YoY. The gross margin rose to 78.4%, up 2.4% QoQ & 13.8% YoY.
The firm also announced ten-for-one forward stock split effective 7th June. It increased quarterly dividend by 150% to $0.10 per post-split share. On such stunning results, its share prices rose 9.3% after announcement.
Even though NVIDIA share prices have risen, its price-to-earnings ratio have come off thanks to even sharper rise in its earnings.
The price paid for each dollar of earnings is cheapest over the last eight quarters based on P/E ratio. The P/E ratio is down to 51x as of Q1 2024 compared to 144x as of Q1 2023.
EARNINGS SURPRISES & SHOCKS AND ITS IMPACT ON STOCK PRICES
NVIDIA’s quarterly earnings has crushed expectations 21 out of the last 22 quarters since 2019. Beating earnings has become par for the course for this firm. Even mild shocks can cause tremors in its share prices.
It is no surprise then that the 12-month rolling beta of the firm is 2.78x making it highly volatile. Beta measures share price sensitivity to the overall market. It quantifies price moves of a stock to the broader index.
BETA HEDGING NVIDIA STOCKS WITH S&P 500 MICRO INDEX OPTIONS
Portfolio Managers holding NVIDIA stocks can cleverly use deeply liquid CME Micro E-Mini S&P 500 Index Options (CME Micro S&P 500 Options) to hedge against potential earnings linked price shocks.
Holding NVIDIA shares while hedging the holding via CME Micro S&P 500 Put Options helps to build effective portfolio resilience.
Investors are assumed to hold one-hundred shares for illustration. The notional value of NVIDIA shares is calculated using close of market price on 23rd August.
Trading View publishes twelve-month rolling beta for each stock. It can be used for calculating the required number of S&P 500 index puts to hedge against downside price risk.
We suggest adjusting the beta upwards (“Earnings Linked Beta”) by 50% to cater for earnings linked excess volatility.
The notional value of options is calculated using Earnings Linked Beta. Two lots of CME Micro S&P 500 Options are required to hedge 100 NVIDIA shares.
The table below demonstrates overall Beta Hedged P&L based on various price scenarios for NVIDIA share prices and S&P 500 futures price after earnings.
Single stock options can be used to hedge. The cost of hedging using them would be expensive due to elevated IV levels during earnings. Investors must balance cost savings against basis risks.
Please note that beta hedging involves basis risks. If the stock and index prices fail to move in tandem as expected, then beta hedge may not provide adequate protection from adverse price moves.
The table below illustrates Beta Hedged P&L if index moves in a muted manner which is unlikely.
The table below illustrates Beta Hedged P&L if index moves inversely to NVIDIA share prices. This scenario is a highly unlikely but is included for clarity of understanding and illustration purposes only.
Investors can consider exploiting elevated implied volatility in NVIDIA options by selling calls to partly fund the purchase of index put options.
By selling a 25-delta options expiring on 30th August, the investor creates a covered call strategy on the underlying NVIDIA stocks. A 25-delta call translates to a 142 strike and the last traded price on 23rd August was USD 2.70 per share. Investors can view up-to-date pricing sheets along with various options analysis tools on CME QuikStrike.
The P&L of beta hedge plus covered call assuming expected index moves is as shown below:
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Full Disclaimer - linktr.ee/mintfinance
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