Traders are making bullish bets on Nvidia ahead of earnings

Investors are positioning for another big run in the graphic-chip maker’s stock following the report. They are scooping up options contracts that would pay out if the shares jump more than 10% this week.

Nvidia recently reclaimed the title of the world’s biggest publicly traded company. Its shares have more than doubled in 2024, after more than tripling last year. That is because its graphics processing units are crucial for building artificial-intelligence systems, including generative AI, the technology underlying OpenAI’s ChatGPT.

Nvidia’s earnings day has become a major event on Wall Street, drawing comparisons with Federal Reserve meetings and key economic reports for their influence over the broader market. “Nvidia Day" has inspired memes, watch parties and large, risky bets on the stock’s next moves.

Investor fervor for artificial intelligence powered the stock market skyward in the first half of the year. By fall, some of that enthusiasm waned when investors began to look skeptically at big tech companies’ vast spending on AI.

In recent days, some of the most actively traded Nvidia options contracts have been calls tied to shares jumping to $155 and $162.50, Cboe Global Markets data show. Nvidia shares closed Friday at $141.98. Call options offer the right to buy shares at a specific price by a set date.

Damon Gnojek, a 34-year-old preloader for United Parcel Service in Oregon, recently bought Nvidia call options that would pay out if the stock reaches $177.50.

He says he started trading stocks in 2019 after the reveal of Tesla’s Cybertruck. He got into options later and began watching Nvidia after hearing Oracle co-founder Larry Ellison recount that he and Elon Musk begged Nvidia CEO Jensen Huang over dinner for the company’s graphics processing units.

“Nvidia is not close to my heart or anything," said Gnojek. “Either way, the very powerful math people with big companies are trying to woo Jensen."

Plus, Gnojek says conditions are prime for Nvidia shares to keep climbing.

“Everyone knows interest rates are going down," he says. “We’re going risk-on. It’s time to play with jet fuel."

Nvidia’s shares often see wild swings after earnings—and traders are wagering that will happen again. They are betting on a roughly 12% move, higher or lower, in Nvidia’s stock in the following session, or a roughly $407 billion swing in market value, Cboe data show. Nvidia’s stock has moved more than 9% on average following its last eight reports, according to Vishal Vivek, equity and derivatives trading strategist at Citigroup.

The chip maker’s explosive growth has made it one of the most popular options trades. About $504 billion in Nvidia options premium, the price of an options contract, has changed hands this year, according to Cboe data through Wednesday. That is more than the combined sum for Apple, Amazon.com, Alphabet, Advanced Micro Devices and Meta Platforms.

JJ Kinahan, chief executive of IG North America, says his clients are watching for signs that demand for Nvidia’s Blackwell chips remains red hot.

“Everybody will be looking for, can that demand keep up with the hype?" says Kinahan. “There’s a huge belief that that can happen."

Nvidia faces lofty expectations for its third-quarter results. Analysts polled by FactSet project sales of roughly $33 billion and profit of $17.4 billion, up from $18.1 billion and $9.2 billion, respectively, last year.

Yet some market strategists worry that Nvidia will continue to come up against tough comparisons that will make it harder to impress investors. Its shares slumped 6.4% in the session after its last report in August when results beat expectations, but on a smaller scale than prior quarters.

And the stock has already run so far, so fast that some investors are cautious about what comes next. Nvidia shares are trading at about 36 times their expected earnings over the next 12 months, up from roughly 34 times at the start of 2023.

Mishelle Orrego has been making bullish bets on Nvidia ahead of the earnings report using call options. The 21-year-old is pursuing a computer-science degree with an AI concentration at the University of Georgia and uses a computer she built herself using a Founders Edition Nvidia GPU.

Orrego says her studies and use of the GPU have helped convince her that Nvidia’s stock has more room to run. She decided against making any bets expiring beyond last week, though she does plan to buy or sell shares depending on how the earnings look.

“It’s good to not be too greedy," Orrego says.

—Gunjan Banerji contributed to this article.

Write to Krystal Hur at krystal.hur@wsj.com