Bank of America offers a market hedge in case Nvidia earnings disappoint this week

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Markets,CBOE Volatility Index,SPDR S&P 500 ETF Trust

Nvidia's earnings report on Wednesday could spark a slide for a stock market that is still fragile from the sell-off earlier this month, according to BofA.

The market appears to be too confident in Nvidia heading into its earnings report this week, and that could result in a wider market sell-off, according to Bank of America. Derivatives strategy analyst Gonzalo Asis said in a Sunday note to clients that investors should consider using a defensive options trade to guard against a disappointing earnings report that triggers a sell-off. "NVDA results have been a key driver of equity indices ...

The put spread trade identified by Asis would involve buying the $555-strike put, and selling the $545-strike put. By owning the $555 strike put, the trade is effectively a bet that SPY will fall below that level. Selling the $545 put helps to lower the up-front cost of the trade, but it does limit the total upside if the the market has a major sell-off that results in both options being exercised. SPY 5D mountain The SPY closed at about $562 per share on Friday.

 

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