Lessons for next time after Nvidia’s stock didn’t surge, and options tanked

And yet, were investors rewarded? Well, if an investor bought the week before results, the investor saw a 6% rise. If that person bought right before Nvidia announced results, the investor was down slightly more than 2% by the end of the week. Not really the hoped-for result from a massive beat-and-raise. Imagine if Nvidia merely met expectations, or shudder, missed them.

And how about for the you-only-live-once option traders? The at-the-money calls quickly turned negative and by the end of the first trading day after Nvidia’s results had lost nearly half their value. The out-of-the-money calls, at a certainly not improbable $500 strike, lost about two-thirds their value. The Aug. 25 $475 calls opened with a small gain before quickly losing value and ending up worthless.

Kevin Muir, the former institutional trader who runs The Macro Tourist, examined the situation at Nvidia. One could have, of course, just shorted the stock, or the options on either Nvidia or its volatility. But that seems incredibly high risk.

There was another, less risky way, to play Nvidia. “The real trade was to be long volatility (or just calls if you were bullish) well in advance of the actual earnings announcement with the idea of riding it higher in anticipation of the earnings. You could have grabbed the September $500 call at 45% vol and held them until 70% on the day before the announcement. But you needed to leave the party just as it seemed the most exciting,” says Muir.

In general, he says, the smart play is to buy ahead of others’ anticipation. But his kicker is really the true lesson here: “Playing the actual event is a tough way to make money.”

The chart

It’s pretty quiet in the early going. U.S. stock futures
ES00,
+0.14%

NQ00,
+0.21%
inched higher, the 10-year Treasury
BX:TMUBMUSD10Y
was 4.22%, crude
CL.1,
+0.04%
was back over $80 per barrel.

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The buzz

China announced a reduction in stamp duty and reduced margin requirements. Separately, developer Evergrande
EGRNF,
+900.00%
finished 79% lower in its first trading day in Hong Kong since a suspension last year.

3M
MMM,
+0.46%
is nearing a $5.5 billion settlement to resolve claims about faulty earplugs, according to reports.

Troubled utility Hawaiian Electric Industries
HE,
-18.55%
saw its stock rise in premarket trade, after it tumbled 19% on Friday.

Profitable grocery delivery service Instacart on Friday filed for an initial public offering.

There’s nothing on the economics calendar on Monday, in a week that will include the latest PCE inflation numbers on Thursday and the payrolls report on Friday.

Best of the web

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The elusive owner of OnlyFans, whose parent company this month reported a surge in profits, users and creators.

Top tickers

Here are the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

The chart

Globally, the Nikkei 225
JP:NIK
has been one of the stars this year, with the Japanese stock market index up 23% this year. But lately it is not rising as the yen has fallen. “Could that be a result of slowing growth globally amidst China’s challenges and weaker than expected PMIs in Europe and the U.S.,” ask strategists at Evercore ISI led by Julian Emanuel.

Random reads

During the actor’s strike, celebs are flocking back to the short-video app Cameo.

A fancy Korean restaurant is opening in New York City — in a subway station.

A rare super blue moon is coming this week.

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