Lesson from NVDA earnings

There is a lesson worth holding onto from NVDA earnings last week. 

The main takeaway? Heavy call buying into the print sets up a supply problem on the other side.

When you see skew flatten in a stock ahead of a print, that's the tell. It's telling you call buying has been heavy and dealers have been buying stock against those calls to stay flat.

Then the print lands and vol resets. All that delta dealers have been holding against the calls needs to come off. Which means stock for sale.

So even on a clean beat, the stock has to climb a hurdle of dealer-hedge supply just to stay higher. That stock has to come back to the market unless the result is good enough to push spot through the call strikes and keep those deltas alive.

If you get a knee-jerk higher, there's pressure to sell into the knee-jerk. If you don't get a good enough number, those calls evaporate and the stock comes to sale very fast.

For me, that's the base case. Whatever the earnings print, you probably get that supply of shares. It takes the stock down, or at least makes it hard for the stock to stay up.

That's the Vanna effect at work.

NVDA was a clean example. Heavy call buying through the week. Skew flattened. The setup was telegraphed in the surface before the number ever printed.

This is the kind of read I walk through in the alpha pod. How skew tells you what call buying is doing under the hood, and how that becomes mechanical supply once vol resets. 

If you've ever seen a stock beat and dump, this is why.