Traders in the options markets are on their toes around the semiconductor sector as AI chipmaker Nvidia prepares to report its quarterly results on the 28th of May. The expectation of widespread market fluctuations is clear in the significant trading of protective options contracts on leading semiconductor exchange-traded funds (ETFs).

With $22 billion in assets, the VanEck Semiconductor ETF (SMH) is the largest. Over the last 10 days, roughly 2.4 put options have changed hands for every call option traded. On Tuesday alone, about 105,000 options were traded against only about 16,000 call options. The co-head of derivative strategy at Susquehanna Financial Group, Chris Murphy, stated,

“The put buying in SMH ahead of Nvidia’s earnings reflects growing concern about potential volatility for the entire sector following the report.”

This includes a considerable trade where one investor purchased 50,000 put options guarding against a 10% slip in SMG shares by the end of May.

Mixed Signals from Nvidia’s Options

A more varied picture is painted by options activity, specifically on Nvidia, notwithstanding the general hesitancy in the larger semiconductor ETF. Some traders are actually selling options, even though Nvidia owns around a fifth of SMH’s assets and has significant influence because of its supremacy in the AI business. By betting that the response to Nvidia’s findings won’t be too harsh, this approach seeks to profit from vertical volatility expectations around the chip maker’s earnings. Even so, Nvidia ranked second on interactive Brokers’ list of most active securities. It was one of only two names where clients were net sellers, conveying underlying caution after its strong recent performance.

Broader Market Implications

Nvidia’s earnings report is the last for the “Magnificent Seven” mega-cap tech and growth companies during this period. Furthermore, its findings are anticipated to have a major impact on semiconductor market perception. Despite the fact that SMH shares have increased by around 1.2% and Nvidia shares have increased by roughly 0.7% so far this year, the cautious options stance reveals investor nervousness about possible market swings based on Nvidia’s commentary and forecast.