Options market sees 12% move in Nvidia after this 'unusually important' earnings report, says Goldman

Nvidia has been the biggest story of Wall Street's rally to record highs, but the options market appears to be underestimating the impact of its earnings report Wednesday, according to Goldman Sachs. John Marshall of Goldman's derivatives research team said in a note to clients Wednesday that options trades for the broader market are curiously cheap given the looming report from the chip giant, even though the implied move for the stock is nearly 12%. "NVDA options suggest investors expect this earnings report to be unusually important; NVDA options imply a +/-11.9% earnings-day move vs. its 4-quarter historical earnings-day move of +/-10.8%. The importance of this earnings report is easy to see given NVDA options volume has been 36% of all single stock options volumes over the past three months," the note said. That expectation may not have filtered through the rest of the market given the cost of straddles, which are an options trade that serve as a bet on market volatility and can profit if stocks rise or fall. "SPX 2-day straddles capturing the move following NVDA earnings only cost 0.76% while the SPX has moved an average of +/-1.2% on the 1-day of the past 4 NVDA earnings reports," Marshall said in the note to clients, referencing options on the S & P 500 . The S & P 500 is a market cap-weighted index, meaning that Nvidia has taken on extra importance over the past two years. Nvidia now has a market cap of $2.3 trillion, making it the third largest stock in the index. The options market has underpriced S & P 500 moves following the previous four Nvidia reports as well, according to Goldman. And this quarter's report could be even more impactful. Given this set up, there is value in buying short-term options on the S & P 500 to play a potential Nvidia-sparked move, Marshall said. Traders could buy call or put options on the index, which are bets that the index will rise or fall, respectively. Straddles combine call and put options, with the same or very similar strike price to the current level of the index, to capture value from a move in either direction. Straddles are more expensive up front than the directional options trades. With all of the above options plays, the losses on the trade are capped at the upfront cost of the contract. —CNBC's Michael Bloom contributed reporting.