An eventful week that included Nvidia earnings and Jerome Powell’s Jackson Hole address ended with a solid if not spectacular 0.8% gain for the S&P 500
which at least brought a streak of three successive weekly declines to an end.
It’s worth revisiting Nvidia
According to FactSet, Nvidia’s earnings beat Wall Street estimates by 29.7% — a larger beat that the 18% beat last quarter, when the market awoke to the potential of artificial intelligence plays to make money right now. Nvidia sales were 21% ahead of expectations and on top of that, Nvidia’s sales guidance for the current quarter was 27% ahead of estimates. It was as massive a beat-and-raise as one could possibly imagine.
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.”
It’s pretty quiet in the early going. U.S. stock futures
inched higher, the 10-year Treasury
was 4.22%, crude
was back over $80 per barrel.
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China announced a reduction in stamp duty and reduced margin requirements. Separately, developer Evergrande
finished 79% lower in its first trading day in Hong Kong since a suspension last year.
is nearing a $5.5 billion settlement to resolve claims about faulty earplugs, according to reports.
Troubled utility Hawaiian Electric Industries
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.
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