Despite the S&P 500 hovering near historical highs and the Cboe Volatility Index (VIX) remaining below its five-year average, underlying market concerns are growing. Recent significant sell-offs in U.S. stocks have traders preparing for potential turbulence. The ratio of open VIX call options to put options recently hit its highest level since September 2023, with over 1 million call options traded last Tuesday alone.
NVIDIA (NVDA, Financial) is set to release its earnings report soon, which could be a catalyst for market upheaval. Investors are betting on increased volatility, spurred by concerns over potential market disruptions. Although political developments have not yet rattled traders, warnings from financial analysts are becoming more frequent. Brent Kochuba of options platform SpotGamma noted that NVIDIA's performance could significantly influence the broader stock market.
With optimism surrounding the AI sector, NVIDIA's stock has more than doubled since its low in October 2023, now making it the second-largest component of the S&P 500. This rise has heightened the market's sensitivity to NVIDIA's fluctuations. Options traders are pricing in a 7.7% post-earnings stock move, compared to an average 9.2% move in the past eight earnings reports. The S&P 500 has seen an average movement of 0.8% on these occasions, above its two-year daily average of 0.6%.
Additional market catalysts, including potential U.S. government shutdowns and tariff decisions, could further drive volatility. Chris Murphy of Susquehanna International Group suggests that negative tariff news could cause synchronized market movements and increased volatility.
