The rebound in the U.S. stock market hides risks: Nomura warns that the options market underestimates the impact of inflation, and NVIDIA's earnings report may spark volatility.

Nomura Securities stated that Wall Street was still cheering for a weak employment report last week, but the market seemed almost unprepared for inflation data this week that could disrupt the entire rebound. Last Friday's disappointing non-farm payroll data (NFP) was interpreted as a dovish signaltraders removed pricing for a Federal Reserve rate hike in September. However, this is a double-edged sword: a weak labor market also faces the risk of reigniting recession concerns as the CPI and PPI data are set to be released this week. Logically, options traders should be bracing for "hot" inflation data since this could shift the market narrative from "the Fed can ease policy" back to "the Fed is caught in a bind." However, Nomura's strategist Charlie McElligott pointed out that the options market is treating this week's inflation data as an inconsequential non-event. Instead, traders are piling up protective positions around the end of the month, when NVIDIA Corporation (NVDA.US) will report earnings and the Jackson Hole central bank symposium is upcoming. In contrast to other positions detailed by McElligott, this phenomenon is particularly intriguing. Call option skew (a measure of the premium traders are paying to bet on further upside) is near its highest level in years; meanwhile, put option skew (the cost of downside protection) has plummeted. Traders have amassed a large number of short call positions above the S&P 500 index at 7900 points, a setup that could accelerate any further short squeeze surge. At the same time, on the downside, systematic trend-following funds (CTAs) have positioned their downside triggers around approximately 4% below the current priceif the stock market breaks lower, forced selling could snowball in that region. For NVIDIA Corporation, options traders are pricing in significant stock price volatility following its earnings announcement. Based on Monday's closing price of $217.55, the at-the-money straddle for NVIDIA Corporation options expiring on August 28 (the first expiration after its August 26 earnings release) suggests an approximately 7.8% price movement in either direction. This implies that the market expects the stock price to range between about $200 and $235 by the end of the earnings week. Open interest is also exceptionally dense just above and below the current price, with over 15,000 open contracts at strike prices of $210, $215, $220, and $225this concentration aligns closely with the positions highlighted by McElligott: as one of the real catalysts the volatility market is preparing for this month, if NVIDIA Corporation's earnings drive the stock price to break out significantly in either direction, this position structure could act as a catalyst for the stock price movement.