(Bloomberg) — Even before Friday’s slide jolted the US stock market out of its calm, some traders were preparing for unrest.
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While the S&P 500 Index was hovering near an all-time high and the Cboe Volatility Index was well below its five-year average, under the surface a more skeptical picture was shaping up — one that’s been already vindicated by the biggest selloff in two months. Last week, the ratio of outstanding VIX call options relative to puts neared its highest level since September 2023, with more than 1 million calls changing hands on Tuesday.
Investors have started to boost bets that volatility will come back as Nvidia Corp.’s earnings on Wednesday could be the first in a whirlwind of events with the potential to send the market into conniptions. While US President Donald Trump’s return to the White House and his tariffs rhetoric have so far done little to spook traders, warning calls have generally grown louder — from Nomura Holdings Inc.’s Charlie McElligott to Goldman Sachs Group Inc.’s Scott Rubner.
Read: Traders Piling Into VIX Call Hedges Raise Pressure on Dealers
“Nvidia certainly seems to have the chance to move the entire equity market,” said Brent Kochuba, founder of options platform SpotGamma. More broadly, “there are a lot of catalysts for volatility to spike over the next several weeks, including tariffs and the government shutdown deadline,” he added, saying that hedging activity picked up on Tuesday, when 250,000 VIX call options were bought in two block trades.
Nvidia has more than tripled from a low in October 2023, becoming a $3.3 trillion behemoth, on optimism over the artificial intelligence sector. The rally has turned it into the second-biggest member of the S&P 500, making the broad market more vulnerable to the stock’s gyrations.
Since its last earnings report in November, trading in the shares has been choppy, and the January rout triggered by Chinese AI startup DeepSeek only added to the concerns. As of Friday, options traders were pricing in a 7.7% move in Nvidia shares following its earnings, compared with an average gain or drop of 9.2% after the last eight quarterly reports. The S&P 500 fluctuated an average 0.8% on those days, more than its mean daily move of 0.6% in the past two years.
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