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Why Nvidia Gains Could Cause Massive Volatility in the S&P 500

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Why Nvidia Gains Could Cause Massive Volatility in the S&P 500

Why Nvidia Gains Could Cause Massive Volatility in the S&P 500

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Investors and speculators are getting ready Nvidia Corp.‘s (NASDAQ:NVDA) earnings report on Wednesday, an event expected to send ripples, if not tidal waves, across the U.S. stock market.

If the options market is right, Nvidia’s results could lead to moves in the S&P 500 index – as tracked by the SPDR S&P 500 ETF To trust (NYSE:SPY) – Greater than the numbers typically driven by key economic data such as employment and inflation reports.

Nvidia’s dominance in the AI-driven technology business has made its profits a barometer of overall market sentiment, and its influence on the stock market is unparalleled.

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Last year, Nvidia was responsible for 20% of the S&P 500’s total returns, and Bank of America derivatives analyst Gonzalo Asis minced no words: “It remains the most dominant stock in the market… and will expected to account for nearly 25% of the S&P 500’s third-quarter earnings per share.”

In essence, whether Nvidia exceeds or misses expectations, the ripple effects will likely extend far beyond the ticker.

The options market implies a potential 1.05% move in the S&P 500 – higher than what traders expect based on next month’s Non-Farm Payroll (NFP) data, the Consumer Price Index (CPI) and in line with Federal Reserve meeting in December.

“Options pose more broad market risk around NVDA earnings than around next month’s NFP and CPI days, and as much as December’s FOMC,” the analyst noted.

For Nvidia stock itself, the implied one-day move is even more striking: 12.5%.

“We remain cautious about individual names’ fragility risks around earnings, but NVDA hedges themselves are not particularly cheap relative to the extent to which stocks have reacted to results over the past two years,” Assis wrote.

The analyst also warned that the recent decline in post-election euphoria and increased vulnerability of individual stocks could be reasons for traders to hedge against potential market turbulence if Nvidia disappoints.

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For traders looking to hedge the broader market risks associated with Nvidia’s performance, Bank of America recommended an options strategy using put spreads on the Nasdaq-100 ETF, the Invesco QQQ Trust (NASDAQ:QQQ). Specifically, the QQQ 22Nov 490-480 put spreads are priced at $2 and could offer a 5x payout if the Nasdaq-100 falls about 3.3% this week.

Despite the potential need for hedges, the bank also noted that hedging NVDA earnings directly isn’t cheap given how much the stock has reacted to the last few earnings reports.

Data from Benzinga Pro shows that over the last twelve quarters, Nvidia has surpassed earnings per share (EPS) expectations 10 times and missed revenue expectations just once.

On average, Nvidia shares rose 5.3% on the trading day after the earnings release.

The biggest single-day gain followed the Q1 2024 earnings results, when the stock rose 24.4%, while the worst reaction came after the Q4 2024 results, with a 7.6% decline .

Here’s a snapshot of the company’s recent earnings performance:

Fiscal quarter

Date announced

Surprise% EPS

Surprise % sales

1-day %NVDA movement

Q2-2025

28/8/24

6.25%

4.73%

-6.38%

Q1-2025

22/5/24

2.86%

5.66%

9.32%

Q4-2024

21/2/24

11.45%

7.19%

16.40%

Q3-2024

21/11/23

19.64%

12.39%

-2.46%

Q2-2024

08/23/23

29.19%

20.38%

0.10%

Q1-2024

24/05/23

18.48%

10.31%

24.37%

Q4-2023

22/2/23

8.64%

0.68%

14.02%

Q3-2023

11/16/22

-15.94%

2.79%

-1.46%

Q2-2023

24/8/22

-59.20%

-17.23%

4.01%

Q1-2023

25/5/22

5.43%

2.07%

5.16%

Q4-2022

2/16/22

8.20%

3.01%

-7.56%

Q3-2022

17-11-21

6.36%

4.00%

8.25%

Data: Benzinga Pro

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Photo: Shutterstock

This article Why Nvidia Gains Could Cause Massive Volatility in the S&P 500 originally appeared on Benzinga.com

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