Traders expect Nvidia to see a huge move on earnings

Semiconductors are surging this year. The SMH ETF that tracks the space is up 17 percent in 2019, with a number of names in the group soaring double digits.

Nvidia finds itself right in the middle of the pack, rallying 15 percent after a brutal end to 2018 cut the stock in half. The company is scheduled to report earnings after the bell Thursday, and while Nvidia issued a warning last month, the options market is still expecting a big move for the chip stock, said RiskReversal.com's Dan Nathan.

"The implied movement is pretty big, and [Nvidia] has been an aggressive mover on earnings news over the last few months," Nathan said Wednesday on CNBC's "Fast Money." "If you think back to Nov. 15, the company reported a very disappointing result, the stock was down 20 percent. Then, just last month, Jan. 25, the company pre-announced a negative quarter and the stock was down 15 percent," he added.

Nathan noted that the current implied move for Nvidia stock is roughly 7 percent in either direction.

But what is an implied move, and how do you calculate it?

The implied move refers to the price of the at-the-money put plus the price of the at-the-money call, divided by the strike price. This can help give investors clues as to where the options market expects a particular stock to trade by a given date.

"If I know that [Nvidia] is reporting on Thursday after the close, I can look at the at-the-money straddle, the weekly options. When the stock was trading at $155, the weekly 155-call was offered at $5.50, the weekly 155-put was offered at $5.50. Together, that makes $11," Nathan said.

"Defining your risk with an at-the-money call or put, [whichever is] your directional bias into this print is the way to do it. You're risking basically $5.50 to make that directional bet on something that may have, sort of, a boomerang action if the news is as expected."

Nvidia was trading slightly higher Thursday.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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