Will Nvidia become the most valuable company on the planet?

It’s a question worth asking after this week. That’s why I asked it just minutes after Nvidia delivered revenue guidance which was (very seriously) described by one firm as “the greatest beat of all time.”

As I wrote in the latest weekly+, it wasn’t just about the numbers. And it wasn’t just about validation for A.I.’s potential as a driver of revenue for the world’s biggest companies. Nvidia’s projection telegraphed something about the immediacy of this would-be revolution. The stock’s historic rally (the post-earnings advance counted as the third-largest single-session value gain in the history of US capital markets) was a testament to a lot of things, not all of which can be summarily dismissed as “hype.”

Over the long-term, the question posed here at the outset will probably depend on A.I. itself. Assuming the technology’s promise is realized, it’ll be about whether the “picks and shovels” guys are surpassed by a few lucky prospectors from the “Thar’s gold in them thar hills” crowd. But as I clarified Thursday, in the near- to medium-term it’s important to acknowledge the potential for retail investors and modern market structure to amplify 90-degree-angle rallies.

We saw that again and again in 2020 and 2021, when the Reddit crowd opened a kind of Pandora’s box. At some point, it dawned on legions of retail traders that they could write their own script — through collective action in the options space, they could create self-fulfilling prophecies by engineering gamma squeezes.

Looking back on one infamous episode involving Tesla, I chuckled at my own editorializing. “Table-pounding pundits and agonizing analysts found themselves in a familiar position on Friday afternoon: Staring down another sizable weekly gain for equities, which continued to confound calls for an imminent pullback.”

I could’ve written that yesterday (i.e., on Friday, May 26, 2023). It would’ve been perfectly applicable. But I actually wrote in on November 5, 2021, as Tesla peaked after adding nearly half a trillion in market cap in the short space of a month. “The impact of the ‘weaponized gamma’ dynamics is again showing us [that] spot equities are left as a derivative of the options market and its flows,” Nomura’s Charlie McElligott said at the time.

Just days earlier, the amount of premium spent on Tesla options singlehandedly accounted for more than half of the entire US options market. That day (October 25, 2021), more than half of the options flow was concentrated in weeklies, including a huge number of calls for that Friday’s expiration. The ratio of call premium to put premium was 18:1.

Fast forward to 2023, and traders have a new idea: They’re turning weeklies for the so-called “Magnificent 7” into 0DTEs by trading them on Fridays. The figure below underscores the point. Call volume in the Magnificent 7 surges every Friday.

In a good piece published this week, Bloomberg’s Lu Wang called it “like clockwork.” The linked article quoted Goldman’s Brian Garrett, who said “Friday should be known as mega-cap tech call option day.”

Finally, the “tail wagging the dog” joke is mainstream. In the article, Wang paraphrased IB’s Steve Sosnick, noting that this behavior is like sports betting with one important twist: The gamblers, if there are enough of them on one side, can tilt the outcome in their favor.

Now imagine what could happen in the event the Nvidia craze doesn’t abate and the company manages to beat “the greatest beat ever” when Q2 results are released.