Nvidia’s first-quarter earnings results this week are anticipated to have a significant impact on the stock market as the company’s growing revenue and profits have been a driving force behind most of the S&P 500’s earnings growth over the past year. Investors are keenly watching Nvidia as it prepares to report its first-quarter results, with the potential for a big move in the stock market depending on the outcome.
The options market is pricing in an estimated 8.5% move in Nvidia’s stock following its earnings release, which is lower than the range seen in previous earnings reports. Nvidia’s success in the AI-focused GPU market has had a substantial impact on the S&P 500’s earnings growth, with its earnings growth driving 37% of the S&P 500’s earnings per share growth over the past 12 months. However, this is expected to drop to 9% over the next 12 months.
To protect against the risk of Nvidia’s earnings influencing the broader market, Bank of America is recommending that investors purchase call or put options on Nvidia itself instead of major indices like the S&P 500 and Nasdaq 100. This strategy allows investors to hedge against potential market movements based on Nvidia’s earnings results more effectively and at a lower cost than using options on broader indices.
Bank of America believes that Nvidia options offer better value than hedging through indices such as QQQ, SPY, and SMH. This is due to the lower cost of Nvidia options, which is likely a result of the strong liquidity and trading interest in the company. The bank advises investors to avoid hedging with broader index options and instead utilize Nvidia options for a more targeted and cost-effective risk management strategy.
By focusing on Nvidia options, investors can more effectively hedge against the impact of Nvidia’s earnings on the broader market, whether they expect a positive or negative outcome. This strategy allows investors to tailor their risk management approach to the specific impact that Nvidia’s earnings results may have on the stock market.
In conclusion, Nvidia’s first-quarter earnings report has the potential to move the entire stock market, and investors can protect themselves against this risk by purchasing call or put options on Nvidia itself. This targeted approach provides a more cost-effective and efficient way to hedge against potential market movements driven by Nvidia’s earnings results.
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https://finance.yahoo.com/news/bank-america-details-best-hedge-014527163.html