Options traders bet Nvidia can keep the chips ripping when it reports earnings

Nvidia's 108% rampage through the first eight months of the year is one of the biggest reasons that the semiconductors have outperformed the broader market.

The SMH Semiconductor ETF is up more than 20% this year while the S&P 500 is up just 5%, and when Nvidia reports earnings after the bell on Wednesday, the options market is betting that outperformance will become even more pronounced.

"Calls have outstripped puts [by a ratio of] about 2 times to 1. That's nothing new, we've seen that trend over the last 20 or so trading days. Taking a look at the at-the-money options out until Friday expiry, we can see that the options are implying just south of a 7% move [in either direction] between now and then," XP Investments managing director Bonawyn Eison said Tuesday on CNBC's "Fast Money."

That implied move is nearly 2% larger than Nvidia's average post-earnings move, and considering that Nvidia has run 36% higher since its last earnings report, the fact that the majority of options activity is falling on the bullish side of the stock's implied move means that traders are betting it can finish the week well above $500 per share. 

"The trade that sticks out to me, about 10,000 of the August expiry 500-calls traded [for] around $12, putting your breakeven around $512," said Eison.

Those were Tuesday's most active contracts, and allow buyers of those calls to play for an upside move of at least 5% while risking only about 2.5% of the current stock price, as opposed to buying the stock outright and facing potentially much larger losses if Nvidia were to disappoint after the bell on Wednesday.

Nvidia was flat in Wednesday's session. 

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