To The Moon

$NVIDIA(NVDA)$ s earnings report exceeded expectations again, but its stock price fell sharply by over 5%.

These past 2 days, Nvidia's earnings report has once again taught all options traders a lesson: earnings significantly exceeded expectations, causing a surge in after-hours trading, but the next day it plummeted 5.7%, wiping out nearly a trillion dollars in market capitalization overnight.

This kind of "good news priced in, surge followed by a fall" pattern is a classic example of a double whammy in the options market—bulls get trapped, and puts may not even profit; once volatility recedes, both contracts plummet.

Since August 2024, every earnings report seems to be followed by a period of decline.

I've experienced this market pattern all too well. In August 2024, after Nvidia's earnings report, I was extremely bullish on $NVIDIA(NVDA)$ reaching $130, and went all-in on a one-sided move, heavily buying a $130 call option.

In the days leading up to the earnings report, Nvidia's (NVDA) stock price was indeed very close to $130, but it just missed the mark.

Then, after the earnings report was released, volatility collapsed instantly, and option prices plummeted. Not only did I not make any money, but because I had misjudged the direction and the options were falling, I added to my positions midway, ultimately suffering heavy losses.

(All of the positions were call options...)

That time, I truly understood:

for high-priced stocks, large orders, and high-volatility sectors, you absolutely cannot rely on confidence to unilaterally gamble on the direction.

• Even if you correctly predict the direction and the stock price moves, the options might fall instead of rising due to the implied volatility (IV);

• If you bet on a big rise, it might surge and then fall back; if you bet on a big fall, it might have a sharp V-shaped rebound;

• Short-term trading aims for speed, accuracy, and ruthlessness, but naked buying and selling = putting yourself in unlimited risk.

The allure of options is never about gambling for overnight riches, but about using strategies to lock in risk and using portfolio diversification to mitigate volatility.

For us short-term traders, spread trading is the lifeline for survival and stable profits.

Fortunately, my strategy on a demo account has had a pretty good win rate recently. I only trade one lot at a time.

The result was (8 out of 10 trades were profitable; one trade was closed early, and it should still be profitable the next day).

And I want to share this lesson with every short-term options trader:

1. Never nakedly buy near-month out-of-the-money options before or after earnings reports or major data releases.

High volatility has already driven up prices; once the positive news is priced in, it's "buy the expectation, sell the fact." A drop in volatility will directly wipe out your profits, or even cause you significant losses.

2. For high-priced stocks (such as Nvidia, Tesla, etc.), only trade vertical spreads.

- Bullish: Buy in-the-money call + sell call with a higher strike price.

- Put: Buy in-the-money put + sell put with a lower strike price.

This locks in maximum losses early, preventing margin calls and double-killing, making it ideal for short-term swing trading.

3. Refuse emotional averaging down. Admit your mistakes and don't hold onto losing positions.

My biggest mistake wasn't misjudging the direction, but constantly averaging down after incurring losses, turning small losses into large ones. The core of short-term trading is cutting losses and letting profits run, not averaging down.

4. Always remember: The options market is the cure for all kinds of overconfidence.

The hotter the stock, the bigger the market trend, the more institutions like to harvest one-sided gains. If you calmly go long, they'll liquidate your long positions; if you firmly go short, they'll liquidate your short positions; in the end, you'll be wiped out, leaving only a mess.

This recent sharp drop in Nvidia's (NVDA) stock price serves as a stark reminder:

The allure of options lies in strategy, not gambling.

For short-term traders seeking long-term, consistent profits, spread trading strategies are not optional, but essential.

Avoid betting on one-sided trends, resisting volatility, and trading based on emotions.

Maintaining risk control is crucial for preserving profits and truly capturing the allure and returns of options.