When analyzing the options market for NVIDIA (NVDA), a clear shift in trader sentiment becomes apparent. As of today, the at-the-money implied volatility (IV), depicted in teal, is significantly higher than the IV anticipated for NVIDIA’s upcoming earnings in February and May. This pattern, especially observed in the 9-day skew, suggests a notable change in how traders are positioning themselves.

Currently, the skew appears to reflect a greater concern over potential downside risks rather than the optimistic, bullish outlook seen earlier this year. For example, when we look back at the market sentiment leading up to February earnings (highlighted in yellow), there was a pronounced call skew. This was largely driven by the fear of missing out (FOMO) on potential gains, as well as excitement surrounding an upcoming NVIDIA product event. Traders were heavily positioned for a bullish move, anticipating that the stock could surge following positive earnings or product news.

However, today’s market tells a different story. The exuberant bullish expectations that fueled the call skew earlier this year are no longer in play. Instead, traders are now pricing in volatility with a more cautious approach. The heightened IV at-the-money suggests that while there is an expectation of movement in NVIDIA’s stock, it’s more likely due to concerns about downside risks rather than anticipation of a significant upside.

This shift from a call-heavy skew to one that hedges against downside risks highlights a broader change in market sentiment. Traders are still expecting volatility, but the nature of that expectation has evolved. Rather than betting on a big upward move, the current skew indicates a market more focused on protecting against potential declines.

The current options market for NVIDIA reflects a more cautious and risk-averse sentiment compared to earlier this year. While traders are still bracing for volatility, the optimism that once dominated the market has given way to a more balanced approach, with a keen eye on potential downside risks.