On the eve of Nvidia's earnings report, options traders are preparing for a deeper pullback.

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Market expectations for Nvidia's earnings are shifting into caution over downside risks. The latest signals from the options market indicate that while investors chase gains, they are also heavily buying protective positions. This rare parallel pattern suggests market volatility may significantly increase.

Nvidia will release its earnings after the close of U.S. trading on Wednesday. Brent Kochuba, founder of derivatives analytics firm SpotGamma, stated in his latest report to subscribers that if investors holding large amounts of Nvidia call options take profits en masse after earnings, this report may become a turning point for a fragile market. Meanwhile, the “fear index” VIX has continued to rise over the past two weeks, climbing alongside the S&P 500 index—a rare combination that some market participants see as a sign of investors proactively hedging against possible pullbacks.

The Nasdaq Composite on Monday saw its first two consecutive days of decline since March, halting a multi-week rally. The soaring semiconductor sector came under pressure, while software stocks performed strongly against the trend, showing initial signs of sector rotation. Art Hogan, chief market strategist at B. Riley Wealth, warned that, with earnings season drawing to a close, the market is finding it hard to locate new positive catalysts, and the macro pressure from rising bond yields is returning to investors' attention.

Rare Options Market Movements: Bullish and Bearish Hedging Rising Simultaneously

According to SpotGamma, the implied volatility and IV Rank of several semiconductor stocks and tech ETFs are at historical highs, indicating the options market is pricing in extraordinary volatility.

Specifically, at-the-money implied volatility for the VanEck Semiconductor ETF (SMH) is 46.97, with an IV Rank as high as 92.59; Marvell Technology’s implied volatility is 96.45, and memory chip stocks such as Micron and Western Digital also see IV Ranks exceeding 80. Kochuba pointed out that implied volatility typically moves inversely with the underlying asset price; “When both rise together, traders are both chasing upside and paying premiums for protection, signaling the market is preparing for expanded volatility.”

This unusual pattern is also reflected in the broader market. Although implied volatility ranks for S&P 500 ETF and Nasdaq 100 ETF are relatively low, the combination of the VIX index and S&P 500 rising together remains a focal point—this is not normal.

Earnings Season Nears End, Macro Pressures Resurface

Hogan told MarketWatch on Monday that during earnings season, investor attention often shifts from macro factors to individual stocks, overlooking macro drivers that previously propelled the market. “Investors have been ignoring signals of inflation and warnings from the U.S. Treasury yield curve, while the 10-year U.S. Treasury yield has surpassed 4.5% and still has upward momentum.”

Wall Street firms including Bespoke Investment Group believe that Walmart’s earnings report, set for Thursday, will mark the unofficial end of this robust earnings season. Once all positive surprises from corporate profits are exhausted, investors may face a lack of new positive catalysts, especially given unresolved tensions in the Strait of Hormuz and persistently rising global bond yields.

Hogan said, This Nvidia earnings report could repeat last quarter’s ‘sell the news’ narrative once good news is fully priced in. He added: “The reality of stubborn inflation and rising rates is regaining attention, which is precisely the root cause of market volatility seen last Friday and Monday.”

Nvidia has historically been one of the few stocks able to move the broader market. Its earnings have significant ripple effects on the semiconductor sector and the entire tech industry. Kochuba noted that if call option holders unwind positions en masse after earnings, there could be systemic selling pressure at the market level—not just limited to individual stocks.

The current market subtlety is this: bullish sentiment and defensive demand coexist, and the balance between bullish and bearish forces could be disrupted at any moment by a single event. As earnings season ends and macro variables come back to dominate, Nvidia’s performance release on Wednesday may be a crucial moment to test the strength of this rally.

Risk Disclosure and DisclaimerThe market has risks; investment should be approached with caution. This article does not constitute personal investment advice, nor does it take into account the unique investment objectives, financial circumstances, or needs of individual users. Readers should consider whether any opinions, views, or conclusions herein are consistent with their specific situation. Investing based on this is at your own risk. ```