Nvidia Modest Beat Fails to Impress as Volatility Fades

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Another dull day for the market, with the S&P 500 finishing up just 24 bps. The market spent the session waiting for Nvidia, with hedges being put on throughout the day, which is why the VIX 1-day rose from around 8 to 15.

A VIX 1-day at only 15 heading into Nvidia seems low. It could be that the market wasn’t as concerned about the results as it has been in the past, or that it was simply starting from a lower base — it’s hard to say. Still, it implies a move of less than 1% tomorrow in the S&P 500.

That said, Nvidia is trading lower following its results. Once again, the bar was high, and the numbers seemed carefully managed, with revenue of $46.7 billion versus estimates of $46.0 billion — a modest beat, especially given the company has typically exceeded expectations by a wider margin. From what I can tell, this was the smallest sequential increase the company has posted in several quarters.

With the stock trading around $175 and implied volatility getting crushed, all those $180 calls will lose significant value tomorrow, and it seems only a matter of time before they get sold off this week. The stock also appears to have slipped into negative gamma after hours, which could change some of the dynamics. For now, support at $170 is key.

In other market news, the 5-year CPI inflation swap broke out of a 2.5-year trading base to 2.65%. I’m not sure when it becomes fair to say inflation expectations are no longer well anchored, but based on this move, we have to think we’re getting close.

Maybe we’re just waiting for the 10-year CPI swap to break out above 2.55% and confirm that double bottom — along with a break of the neckline — before saying inflation expectations have officially become unmoored.

Finally, the 30-year minus the 2-year is moving, having cleared resistance at 1.25%, and now looks on pace to rise toward 1.6%. The question is what form it takes — the 2-year falling, the 30-year rising, or a combination of both. It’s hard to imagine 5- and 10-year inflation swaps trading higher without long-end rates eventually following. I’d think the combination move only lasts so long before the long end has to do the heavy lifting.

-Mike

Glossary

Basis Points (bps) – One hundredth of a percentage point, commonly used to measure changes in interest rates or index performance.

CPI Inflation Swap – A derivative contract allowing investors to exchange fixed payments for floating payments tied to consumer price index inflation, reflecting market expectations for future inflation.

Double Bottom – A bullish chart pattern formed when an asset makes two low points at roughly the same level, signaling potential upward reversal once resistance is broken.

Gamma – A measure of how much an option’s delta changes when the underlying asset’s price moves, often linked to hedging dynamics in options markets.

Implied Volatility – The market’s forecast of a stock’s likely movement, derived from option prices.

Inflation Expectations – The market’s or public’s outlook on the future rate of inflation, influencing interest rates and monetary policy.

Negative Gamma – A condition where market makers short options must hedge by buying into strength and selling into weakness, amplifying price swings.

Support – A price level where buying interest is strong enough to prevent further decline in an asset.

Volatility Index (VIX) – A measure of expected stock market volatility, often referred to as the market’s “fear gauge.”

Yield Curve – A graph plotting interest rates of bonds with different maturities, used to assess economic outlook and investor sentiment.

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Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.