By: Michael Kramer
Today, we received the consumer confidence report from the Conference Board, which showed that one-year inflation expectations rose to 6% from 5.2% in January. This follows the University of Michigan report, which jumped to 4.3% from 3.3%. I don’t know what next month’s data will show, but it seems clear that inflation is doing anything but moderating. One could certainly argue that inflation expectations are no longer well-anchored.
But let’s forget about inflation for now because more pressing matters are at hand—namely, the most important stock in the world, Nvidia, and its earnings report tomorrow. I’m just waiting for that $2 billion revenue beat, followed by next quarter’s guidance exceeding it by another $2 billion—totaling $4 billion more than last quarter’s guidance for the current quarter. After all, they’ve done this for six consecutive quarters, so why not make it seven? It wouldn’t be surprising if the company reports revenue exceeding $40 billion and provides guidance above $42.5 billion.
Right now, the stock is expected to move only 9% post-earnings—so what’s that, a $300 billion market cap swing in either direction? What could go wrong? The at-the-money options expiring on Friday have an implied volatility of about 147%, and that will likely be even higher by tomorrow afternoon.
Right now, the $127 call options for Friday are trading at $6.60, meaning the stock needs to rise to $133.60—about 5%—just for the buyer to break even. Meanwhile, the $127 puts for Friday are trading at $6.90, requiring Nvidia to drop to $120.10, or 5.4%, to break even. I’m guessing there will be plenty of unhappy put and call holders come Thursday morning.
Originally posted on February 25, 2025 on Mott Capital blog
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