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The stock market uptrend has come under a lot of a pressure as Wall Street eyes an earnings calendar filled with technology names like Nvidia (NVDA), Marvell Technology (MRVL), Workday (WDAY) and Snowflake (SNOW).
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Nvidia, a bellwether in the technology sector, is set to report results Wednesday after the close. Nvidia stock, up nearly 200% year to date through Thursday, is currently making a key first test of its 10-week moving average.
To be sure, a lot of good news has been priced into Nvidia already. But that was also the case in late May, when Nvidia stock rallied sharply into earnings. The earnings report in May was quite impressive and fueled more gains for Nvidia stock, even though earnings and revenue declined from year-ago levels. But data-center revenue increased 14% to $4.28 billion. CEO Jensen Huang cited surging demand for its data-center products, including artificial intelligence chips.
Nvidia forecast revenue of about $11 billion, plus or minus 2%. That was about $4 billion ahead of the consensus estimate at the time of $7.15 billion. The Zacks consensus estimate is for July-quarter adjusted profit to soar 303% to $2.06 a share, with revenue up 64% to $11.02 billion.
Earnings Calendar Highlights
Like Nvidia, Marvell Technology also gapped up powerfully in May after reporting earnings and saying it expects revenue growth to accelerate in the second half of the year.
Earnings and revenue also declined at Marvell, but Citi analyst Atif Malik at the time noted a major opportunity for MRVL in artificial intelligence:
“In FY (fiscal year) 2023, MRVL estimated its AI revenue to be approximately $200 million, representing a strong uptick from FY22. The company expects AI sales to reach $400 million (plus) in FY24 before doubling in FY25,” the note said.
Check Out This Week’s Earnings Calendar
MRVL held gains well after its earnings gap on May 26. The stock pulled back and found support at the 21-day exponential moving average, but MRVL is now below its 50-day line with sellers in control. Earnings and revenue are expected to decline again when MRVL reports late Thursday.
In the software sector, Workday is still showing relative strength, trading near its 50-day line. WDAY stock also gapped higher May 26 on news that earnings growth accelerated from the prior quarter, rising 58% to $1.31 a share. Revenue increased 17% to $1.68 billion.
Results are due Thursday after the close, and analysts are modeling another solid quarter of bottom-line and top-line growth. Adjusted profit is expected to rise 51% to $1.25 a share, with revenue up 15.5% to $1.77 billion.
Despite strong growth prospects, Snowflake recently undercut its 200-day line. The stock gapped down on earnings in May. Revenue growth has been decelerating but remains impressive, ranging from 83% to 48% the past four quarters. Still, for the July-ended quarter, revenue growth is expected to slow again, rising 33% to $661.75 million. The data-warehousing company reports Wednesday after the close.
Options Trading Strategy
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works and what a call option trade recently looked like for Nvidia stock, perhaps the most noteworthy stock on the earnings calendar.
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have already broken out and are getting support at their 10-week lines for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Once you’ve identified an earnings setup for a call option, check strike prices with your online trading platform, or at cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.
Look for a strike price just above the underlying stock price (out of the money) and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
See Which Stocks Are In The Leaderboard Portfolio
This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most you can lose is the amount paid for the contract.
Earnings Calendar Option Trade
Nvidia is quite active in the options trading market, but it’s not a cheap trade by any means.
When Nvidia traded around 437.25, a slightly out-of-the-money weekly call option with a 437.50 strike price (Aug. 25 expiration) came with a premium of around $26.10 per contract, or 6% of the underlying stock price at the time. It was a pricey trade, above the 4% risk threshold.
One contract gave the holder the right to buy 100 shares of Nvidia stock at 437.50 per share. The most that could be lost was $2,610 — the amount paid for the 100-share contract.
When taking the premium paid into account, Nvidia would have to rally past 463.60 for the trade to start making money (437.50 strike price plus $26.10 premium per contract).
Keep in mind this is not a trade for a small portfolio. If the option is exercised, buying 100 shares of Nvidia stock would cost $43,750 based on the 437.50 strike price.
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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