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Let's start with Nvidia earnings. That is going to be a huge test for the markets this week. Our next guest saying that the options market is pricing in a nearly 10% move for the stock, a shift of $300 billion potentially in either direction. And the S&P options markets are considering this event just as large as as Federal Reserve J Powell Jackson Hole or even the next job support. So here with more, we want to bring in David Bull. David is the managing director for equity derivatives at Baycrest. David, it's great to have you here. So, options market clearly anticipating a big move on the heels of those numbers that I just cited there. Is give us a better sense of this the implications of this. Is this something that's in line with what we've seen past quarters or is this something that's out of the ordinary?

Hey, good morning. Thanks for thanks for having me. Um, it is it's normal for the options market to expect a massive earnings move from Nvidia. This is, however, the largest percentage implied move that we've basically ever seen. There was one move back in May of 2022, where was also nearly a 10% implied move. Now, it's very tricky for option market makers to get a handle on what Nvidia could or could not do where often, as everybody knows, it's a massive move higher in Nvidia stock. And sometimes, two of the last four, there's been almost minimal moves. But in terms back to what the market's expecting, now the stock's a $3.3 trillion dollar company. So as the stock uh gets larger and larger, it's interesting that the options markets expecting uh just as large of a move. So $300 billion in market cap expected to be created or destroyed uh Wednesday after the close, Thursday, um, trading day. I can't find another um catalyst in the single stock option world that has that that we've seen like this before.

Is the pricing that you're seeing heading into the earnings print to you an indication that traders are feeling like Nvidia's valuation is out of line?

No, I mean, I think for my conversations with traders is that people are generally bullish on Nvidia, but are a little bit hesitant to outright buy the stock here, given that it already is has risen nearly 30% in 14 trading days since the August 5th low. And that's when you when you stack that against the other stocks in the in the entire market, all large cap, midcap stocks that are generally liquid, that's in the top 10 of largest gainers. So it's moved as much or more than almost every stock out there. And so I think there's there's a sense from clients that they're willing to buy the stock lower, but unsure if the stock can continue to surge higher. It's unclear how the stock can continue to surprise. I mean, we all know there's heavy demand for the Nvidia chips, but what can they say that's really going to surprise people from here? That being said, the options markets are saying the stock could uh add another $300 billion in market cap on on this Wednesday afternoon um event.

David, why are we seeing more correlation this time this time around between what the S&P options market is pricing in and what Nvidia options market is pricing in? And talk to us about that because that's not necessarily what we saw after last quarter.

Correct. Uh, lately, it's back to the normal ways of movement, where where the tail Nvidia is wagging the dog. The tail is wagging the dog of the S&P 500. The correlation between Nvidia and the stock market in August is um upwards of 80, 85% last I looked. So that's normal that they move together, and I and I see traders that watch the two on a chart together to try to get a sense of how the S&P might move watching Nvidia tick by tick. Last quarter, as you mentioned, was really interesting, where I don't think know if we've really been seeing that before, where Nvidia was up about 9% after hours uh right after they reported earnings, and the market was up. And then we had some hot ISM data, and the market sold off, was down almost a percent the following day, and Nvidia didn't budge and was up 10%. It was the first time that I can recall really seeing the narrative flip, where investors were saying, okay, we get it, there's a lot of demand for Nvidia chips, but is this the reason to go out and buy every other stock in the S&P 500? That was last quarter. We'll see what happens this quarter. The the options markets in the S&P are expecting that what's good for Nvidia will be good for the stock market, and they're expecting a 1.2% move in the S&P 500 on Thursday. So that like I said earlier to open the segment, that's a really big move. That's more than we are expecting or really in line with the Powell at Jackson Hole event. So, um the options market's kind of not expecting that we'll have this correlation break, but it there is precedent for it happening before, and it was last quarter.

Given that we have jobless claims on Thursday, could we see a similar move in terms of Nvidia earnings moving Nvidia to the upside, but then if those jobless claims disappoint, could that lead the broader market to go lower while Nvidia maintains its move to the upside if those earnings do come through?

Yeah, I mean, great point. That could be the catalyst to have a similar reaction. And there's so much option selling in the S&P 500 that's essentially playing for the index to stay still, just not move much. So if you have Nvidia that goes up a lot, and then there could be some dispersion for the rest of the market, where the other stocks need to go down, where the markets essentially staying sideways. So that that could that certainly could happen, and um it wouldn't be that surprising because the dominant positioning in the S&P 500 options world is for the stock market to stay relatively muted, kind of sideways most days. So if the uh traders are playing for the S&P 500 to just go sideways, to grind slightly higher, and Nvidia goes up a lot, and then we have this catalyst like we uh weekly claims, um maybe that's the catalyst for the rest of the market to kind of bounce off a big move in Nvidia.