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On May 2 2 , 2 0 2 4 , Nvidia ( NVDA ) will report its next quarterly earnings. Maria Branyas Morera is an

On May 22,2024, Nvidia (NVDA) will report its next quarterly earnings. Maria Branyas
Morera is an equity analyst noted for her extensive knowledge of the chip industry and the
technical details of GPU production. Maria is convinced that the development efforts of Nvidia's
chief rivals are approaching a point at which Nvidia's current dominant position could
deteriorate. After noting that Nvidia's earnings surprises have been steadily decreasing over the
last four operating quarters she begins to develop an options strategy.
NVDA Quarterly Earnings Surprise Amount (From NADSAQ)
On March 20,2024, the stock was trading at $942.89 per share. Maria believes that the
stock will remain near its current level until the next earnings date. She reasons that while there
is likely to continue to be upward pressure on earnings, the likely surprise on the next earnings
release date could be smaller than the most recent one. This in tum would mean less of a price
movement than on recent earnings release dates. Branyas also sees downside risk based on the
aforementioned progress by rivals. After some reflection she recommends that her trading group
at Bankinter SA take a long position in a bull spread on NVDA stock using the June 21,2024,
expiration. For that purpose, she identifies the following two options.
Create a spreadsheet like those discussed and constructed in class which shows the
payoffs to a bull spread constructed using these two options. The spreadsheet should
demonstrate the mathematical values of the individual components of the spread and the total
position as a function of the potential ending spot price of the stock.
Your spreadsheet should contain a graph showing the individual option payoffs and the
combined total position being sure to select a range of values which includes, but extends at least
slightly beyond, the point at which the position breaks into a net positive position on both the
downside and upside. In addition, your spreadsheet should contain a table similar to that on p.
255 of the textbook, but which shows both the payoff and profit (net payoff) in the ranges when
the ending stock price is 1) below the lower strike price, 2) between the lower and upper strike
prices, and 3) above the upper strike price. Note that the table you must construct is similar to
one in the textbook, but with the addition of the net profit as is done in the example spreadsheets
on Moodle. Also note thot the example table on p.255 is for a bear spread using puts while your
table will be a bull spread using puts.
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