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Alibaba, NVIDIA Earnings Loom: DeepSeek's Impact Echoes in Options Market Signal？

With the release of DeepSeek's R1 model, the long-believed AI logic in the market has gradually shifted from a focus on computing power accumulation to software applications. NVIDIA was once severely hit, with its market value shrinking by more than one-sixth. 

In parallel, the voices of re-evaluating Chinese tech stocks have been growing louder. Bank of America and Deutsche Bank have successively expressed bullish views on Chinese assets, and tech companies led by Alibaba have once again become the focus of investors' attention.

Alibaba

$Alibaba(BABA)$   will release its financial report before the market opens on February 20 ET.

Institutions expect that in the third quarter of fiscal year 2025, Alibaba will achieve revenue of 278.927 billion, a year-on-year increase of 7.14%; and the expected earnings per share is 15.90, a year-on-year increase of 181.36%.

According to a report by The Information on February 12, Apple and Alibaba will develop AI features for Chinese iPhone users. Coupled with the recent catalytic effect of DeepSeek on the re-evaluation of the value of Chinese tech stocks, Alibaba's share price has soared by as much as 47.10% since the beginning of this year.

The performance on this earnings announcement day has drawn significant attention. The options market is priced in an implied movement of up to ±8.9%, which is significantly higher than the historical average level. In the previous four earnings announcement days, the market expected an average post-earnings volatility range of ±6.2%, while the actual final movement range reached ±3.5%. 

Last Friday, Alibaba's share price rose by more than 4% and closed at $124.73. The open interest of options was 2.86 million contracts, and the put/call ratio was 0.48.

Among them, the call option contract with the largest open interest had a strike price of $100 and an expiration date of March 21. The open interest of this contract was 42,047 contracts.

As shown in the chart, Alibaba's implied volatility (IV) is 57.32%, at the 98th percentile. The market anticipates significant subsequent price fluctuations, which is higher than the historical volatility (HV) of 46.01%.

In addition, from the perspective of the implied volatility skew, the 25-Delta call has a higher implied volatility, indicating strong bullish sentiment. 

In terms of the share price, JPMorgan Chase maintains a valuation framework based on a 12-times price-to- earnings ratio for the expected fiscal year 2026. The target price corresponds to $125/HK$120, representing a potential increase of 34% from the current share price.

NVIDIA

$NVIDIA Corp(NVDA)$   will release its financial report after the market closes on February 26 ET.

Institutions expect that in the fourth quarter of fiscal year 2025, NVIDIA will achieve revenue of $28.105 billion, a year-on-year increase of 72.40%; and the expected earnings per share is $0.798, a year-on-year increase of 61.85%.

Morgan Stanley said in the report that Nvidia is still the top choice in the semiconductor field. It also emphasized that Nvidia's AI revenue is 10 times that of AVGO, but its market value is only 3 times that of AVGO, “and now trades at a deep discount to AVGO/MRVL. We don't think that discounts will last”.

NVIDIA's share price rose by 2.63% last Friday. The total open interest of its options was 24.87 million, and the put/call ratio was 0.92.

It is worth noting that according to the data of the highest open interest, the put option with a strike price of $120 and the expiration date of March 21 has 226,920 open contracts. And we can see that in Bid/Ask Vol, 68% of the open interest (OI) consists of buyer contracts. 

The market may be preparing to establish reverse positions in the medium term to hedge against risks.

NVIDIA has a relatively high probability of rising on the past 12 earnings announcement days. In the previous four earnings announcement days, the market expected an average post-earnings volatility range of ±9.2%, while the actual final movement range reached ±8.2%. For this quarter, the options market has priced at an implied movement of ±10.2%.

As shown in the chart, NVIDIA's implied volatility (IV) is 59.83%, at the 69th percentile, and the historical volatility (HV) is 84.82%. On January 27, affected by the sudden emergence of DeepSeek, the share price fluctuated violently and dropped by 16%, and the HV also rose rapidly to 74.72%.

Since NVIDIA's implied volatility usually rises sharply as the earnings report approaches and tends to stabilize after the earnings are announced, investors can consider some appropriate options strategies.

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