Sentiment around the chipmakers hinges on Nvidia's earnings report, says options trader

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Options traders bet on big Nvidia move

Chip on your shoulder?

You might have one if you're invested in Nvidia, shares of which have declined by more than 14% this month heading into the semiconductor company's earnings report Thursday after the market close.

But Nvidia's report, which follows fellow chipmaker Intel's disappointing announcement from late April, is key to how investors will view the semiconductor space going forward, said longtime options trader Dan Nathan, co-founder and editor of RiskReversal.com and principal of Risk Reversal Advisors.

"It's going to be an important number, I think, for sentiment in the semi space," he said Wednesday on CNBC's "Options Action." "I think it's important to remember that, obviously, this thing was down 60-or-so percent from its all-time highs at one point earlier this year."

Nathan, who also appears as a trader on CNBC's "Fast Money," cited a one-year chart of Nvidia showing a key level from which it gapped down — or fell from the previous day's closing price without any trading in between — last November.

"Look what it did on that rally back. It went back and it basically filled in that gap," Nathan said. "Since then, it's been down about 20%. It's still up 20% on the year."

A stock filling in its previous gap is typically a bullish sign in the technical world, which could mean good things for Nvidia's upcoming earnings report. The options market is implying a 7.5% move in either direction for the $161 stock, or a $12 swing to the upside or downside.

"If you buy that and buy the implied movement, you need a move of greater than 12 bucks between now and Friday's close," he said.

Shares of Nvidia were up less than 1% midday Thursday. Wall Street consensus on the $98.2 billion company is generally bullish, with 59% of analysts rating the stock a buy, according to FactSet.