Hey trader,
Nvidia fell almost 10% into last night’s earnings.
I measured it high to low with the drawing tool this morning, and that’s the number it gave me.
A whisper had been circulating that earnings would suck.
That whisper bought a lot of puts across Nvidia and semiconductors the entire way down.
Then the number landed.
Nvidia is up $15.76 as I write this.
The expected move priced into the options yesterday was $13, so we’ve already blown past what the market paid for.
Here’s what I keep circling back to.
A good chunk of the buying that lifted the stock today had nothing to do with anyone liking the earnings.
So where did it come from?
Allow me to show you…
The whisper sold the stock before the number existed
A whisper is just an unofficial expectation making the rounds ahead of a release. Whatever this one said, it was negative.
You could see it in the tape. Bearish trade built in semiconductors on the way down, and Nvidia sold off about 15 points on a 225 stock.
That’s a meaningful pullback on its own.
Nvidia is unusually hard to whisper about accurately. They’re essentially the bank. They finance the purchases people make of their own components, and they’re working to create a $500 billion facility to support those purchases.
Analysts keep valuing Nvidia like a traditional chip company. I don’t think most of them are prepared to analyze it like a lender, which is closer to what it actually is.
The number came out. It wasn’t as negative as the whisper implied. The stock made back what it lost, and the whisper got eradicated in a single gap.
The gap forced dealers to cover, not to buy
This is the part worth slowing down on.
Yesterday, the puts sitting below the market were roughly 50 delta. Delta measures how much an option moves for every dollar the stock moves, so 50 delta means about half a share of exposure per contract.
Today those same puts are 3 delta. One gap took them from live to nearly worthless.
Dealers sold those puts to the institutions buying them. To stay neutral, they hedged by shorting Nvidia stock against the position.
When the puts died overnight, the hedge stopped being necessary. Dealers had to drop their shorts and buy stock back to flatten out.
They don’t end up long. They end up at zero, because the delta they were hedging went to zero. The buying happens on the way to flat.
That’s a real bid, and it has nothing to do with conviction in the earnings.
The whole thing was assessable in advance. There were 210,000 contracts of open interest sitting at the 230 strike. That told you where the market was headed if a positive gap arrived.
Positive gamma turns 230 into a ceiling
The call wall is simply the strike carrying the most open interest. On Nvidia, that’s 230.
Today’s high was 227.31.
Here’s the mechanic underneath it. Institutions are selling those calls, which means the dealer is buying them.
Buying calls carries positive delta, negative theta, and positive gamma. Gamma measures how fast delta changes as price moves.
To offset that positive delta, the dealer goes short stock.
Now watch what happens. Price rises, delta rises with it, and the dealer has to increase shorts. They sell into strength.
Price falls, delta shrinks, and they buy their shorts back.
Positive gamma creates a stabilizing force around the price. With one day left to expiration, that produces a pinning effect at heavy strikes.
Today’s flow is adding to it. Calls are running 5.4 times average with a put/call ratio of 0.5, and 37% of calls are being bought against 31% sold.
That’s a slight upside bias. It isn’t a massive imbalance, and it looks like it’s building walls at 225, 230, and 240 rather than tearing them down.
Unless something unusual happens, I expect Nvidia to stay between 225 and 230 into Friday’s expiration.
The structure ahead is tighter than the move suggests
Once tomorrow clears, September becomes the map.
Above 240, Nvidia runs into a wall roughly every $5. There’s significant interest at 240, 245, and 250, and it doesn’t lighten up until north of 280.
The downside is equally boxed in. We’d need to break 195 before the door to real volatility opens.
That leaves Nvidia bottled up somewhere between 195 and 240 for the next 22 days unless the structure genuinely changes.
I’m not treating this as a setup. There isn’t a clean edge in a stock this pinned.
One last thing worth watching. The S&P 500 is up today almost exclusively because Nvidia is up.
Nvidia is sucking the air out of the room. For it to keep climbing from here, it has to cannibalize the rest of the market, and that gets very difficult very fast.
Brandon Chapman, CMT
Creator of Ghost Prints
