The surge ignited by NVIDIA is a &#34;epic&#34; gamma squeeze? Goldman Sachs warns: NVIDIA's performance is expected to greatly exceed expectations, but under gamma squeeze, the stock price may experience a pullback.
Goldman Sachs trader Scott Rubner recently stated that with the NVIDIA earnings announcement imminent, given the significant gamma squeeze in terms of index correlation, factors, and earnings momentum, NVIDIA is currently the most important stock on Earth.
Through his expertise in &#34;contrarian thinking&#34; analysis, Rubner stated that this &#34;squeeze&#34; first moves &#34;upwards&#34; and will then experience a &#34;downward&#34; correction - gamma squeeze is mainly driven by retail speculation and a large influx of capital. Once it reaches its peak, a price reversal will quickly follow.
Rubner also mentioned that NVIDIA's performance is expected to significantly exceed expectations, with the options market indicating an implied volatility of 11% for the post-earnings stock price.
Wall Street News previously mentioned that bullish options are heavily betting on NVIDIA and other AI stocks, with a large amount of funds flowing into options and stocks. The signs of gamma squeeze are evident, with the implied volatility of bullish options reaching a high level. After NVIDIA releases its financial report, the implied volatility of the entire options market may decrease, leading to a decline in the prices of bullish options for NVIDIA-related stocks.
Gamma squeeze refers to investors concentrating on buying short-term bullish options to drive up the stock price of the underlying asset. As bullish options move into the money, options market makers have to buy more stocks to control risk exposure, further boosting the uptrend and causing a rapid surge in stock prices.
According to related data, options market pricing estimates that NVIDIA's post-earnings stock price will experience a fluctuation of around 10.6%, potentially setting a record for the largest single-day fluctuation ever, leading to a market value change of $170 billion for NVIDIA.
Overall, based on the comprehensive data, the current &#34;squeeze&#34; in the market can be described as distorted. It can be said that traders currently generally expect positive NVIDIA financial reports. To maintain a stable post-earnings stock price without dragging down the overall market, the performance must exceed expectations significantly.
According to Scott Rubner's report, the market features are as follows:
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<li>Stock market leverage and futures fund risk exposure are at high levels</li>
</ul>
The overall book leverage ratio rose by 0.9 percentage points to 268%, while the overall net book leverage ratio remained at 72.0%, both hitting a new high in a year. High leverage often implies higher returns, but it also implies a &#34;overheated&#34; signal, which could lead to significant losses once the market reverses.
Currently, the risk exposure of CTA funds is near historical highs, with a short-term trigger point possibly at 4858 points.
<ul>
<li>Market sentiment is soaring with retail investors pouring in</li>
</ul>
Goldman Sachs' sentiment index has a latest reading of 1.1 (&gt;1), in the overextended zone, with a previous value of 0.8. Retail activity in stocks and message boards has reached the highest level since the frenzy in 2021.
Retail activity through call options is increasing, indicating that retail investors are buying call options, squeezing the gamma values of individual stocks.
<ul>
<li>Chip stocks are driving a large influx of funds</li>
</ul>
US information technology stocks have seen the largest net inflow in over a year, mainly driven by chip and chip manufacturing stocks.
Furthermore, under the influence of tech stocks, the inflow of target date funds and passive funds has also hit a new high in over a year.

NVDA

Traders have generally anticipated a positive earnings report from NVIDIA. In order to maintain a stable stock price after the earnings release, the performance must exceed expectations significantly.

Goldman Sachs: NVIDIA is currently "the most important stock on Earth", tonight's earnings report "must" greatly exceed expectations.