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Nvidia set to report first quarter earnings on Wednesday. Options traders tracked by Bloomberg predicting the stock will likely gain or lose as much as 7.4% the following day. That would be a lower level of volatility than what we've seen the last eight quarters with an average swing of over 11%. Joining us now, we've got Sean McLaughlin. He is All Star Charts Chief Options strategist. Sean, great to speak with you. I know you've sent over in your notes that if you were trading Nvidia right now, you'd be positioning for a neutral to positive earnings reaction. Talk to me about why that's your base case.

So, what I tend to see happen when earnings events happen is that if there is a surprise move in the market, that surprise move tends to happen in the direction of the underlying trend. And there's no denying that the underlying trend in Nvidia and all the quantum stocks, uh, has been up, uh, coming off the Liberation Day lows. Uh, and so, if there is any surprise, I think Nvidia is going to be higher. Um, I'm not necessarily predicting that we will have a huge pop higher, but I think if there is one to happen, odds are it will be higher. I think more likely Nvidia is going to have maybe a little a muted response, a little underwhelming response, uh, to the market or to the expectations. And therefore, as an options trader, I want to play this, uh, play this earnings event with an option spread that that pays me whether the stock goes up, the stock goes sideways. Really, I I just don't want it to go down very big. That that's the way I'm playing it.

Sean, can you operationalize that for me and for our options traders listening in? What exactly is your approach to that?

Sure. So I'm going to utilize an in-the-money call spread. A vertical spread that it consists of an in-the-money option or in-the-money call and an at a short and an at-the-money call. So what I'm doing is I'm leveraging the fact that there's a lot of premium at the at-the-money strike. So looking at Nvidia right now, it's trading at 130, in the neighborhood of 130. So I want to be short the 130 strike, but I want to buy the 120 strike. So there's $10 wide difference between those strikes. And I want a position in the options that expire next Friday, that's May 30th. That's the the soonest expiration following earnings. And because I'm getting a lot of premium to sell that 130 strike right now, if Nvidia were to absolutely crash, I don't think it will, but it could, right? It it could happen. Well, playing this event with an option spread, I will be better protected versus say a normal stock trader. If I'm long Nvidia stock and the stock gaps down to, let's say, 110 or 120 following earnings, I'm going to lose a lot more money had I been positioned in stock versus, uh, the options because of the fact that I'm selling premium at the at-the-money strike, which really gives me a lot of cushion.