CoreWeave Reports Tomorrow. The Options Market Is Pricing 50% of Its June Move Into Two Days.

Key Concepts

• GPU Clusters: High-performance computing infrastructure rented by AI labs to train large-scale models.
• Remaining Performance Obligations (RPO): A metric representing the total value of signed contracts that have not yet been recognized as revenue; a key indicator of future growth.
• Implied Move: The expected price movement of a stock over a specific period, derived from options pricing.
• Volatility Crush (Vol Crush): The rapid decrease in implied volatility (IV) that typically occurs immediately after an earnings announcement.
• Diagonal/Calendar Spreads: Options strategies involving the simultaneous purchase and sale of options with different expiration dates to capitalize on time decay and volatility changes.
• Notional Value: The total face value of the underlying asset represented by an options contract.

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1. Coreweave Financial Context

Coreweave, which provides compute infrastructure for AI development, has exhibited a volatile trading pattern since its March 2025 IPO.

• Stock Performance: IPOed at $40, currently trading at $136. It has seen significant swings, including an 18.5% drop in the previous quarter.
• Earnings Pattern: The stock historically beats revenue expectations but often misses EPS targets and provides disappointing guidance, leading to sharp sell-offs followed by recoveries to new highs.
• Market Expectations: For the May 7th earnings report, the options market is pricing in an 11% move (approx. $16).
• Revenue & Backlog: Consensus revenue is just under $2 billion (up 100% YoY). Analysts are closely watching the RPO, which could grow from $67 billion to $95 billion due to new deals with Meta and Jane Street.

2. Options Strategy and Methodology

The presenter emphasizes "strategic flexibility" when trading high-volatility earnings events.

• Cycle Analysis: The presenter compares the 2-day cycle (earnings) against the 43-day (June) cycle. Because the 2-day cycle accounts for roughly 50% of the 43-day cycle's implied move, the earnings event carries significant weight.
• Risk Management:
  • Credit Spreads: The presenter prefers selling credit spreads further out in time (9-day or 43-day) rather than the 2-day cycle to allow more time for a potential reversal if the stock moves against the position.
  • Calendar/Diagonal Spreads: These are preferred over simple directional bets to mitigate the high cost of options premiums.
• The "Calendar Spread" Trade:
  • Execution: Sell the 2-day option (to capture high IV) and buy the 9-day or 43-day option.
  • Rationale: This reduces the cost basis. If the stock moves favorably, the trader profits from the long option while keeping the premium from the short-term option as it expires worthless.
  • Cost Efficiency: The presenter notes that a 10-point wide diagonal spread can be expensive ($1,300), so a calendar spread is often a more capital-efficient alternative.

3. Theoretical P&L and Curve Analysis

To manage risk, the presenter uses "curve analysis" to simulate outcomes:

• Volatility Adjustment: The model assumes a 50% collapse in implied volatility in the 9-day cycle post-earnings.
• Break-even Points: By adjusting for time decay and IV contraction, the presenter identifies a profitable range (e.g., $140–$160) for a specific $238 debit trade.
• Actionable Insight: The presenter opts for a bullish-leaning calendar spread, noting that even if the stock drops (as history suggests it might), the reduced cost basis and time buffer provide a defensive mechanism.

4. Synthesis and Conclusion

The core challenge with Coreweave is its extreme volatility and the tendency for the stock to "drop like a log" despite strong sector tailwinds. The presenter concludes that:

1. Avoid "Instant Pain": Selling 2-day options carries high risk; extending duration provides a "defensive mechanic."
2. Capitalize on IV: The primary goal is to extract extrinsic value from the 2-day cycle while maintaining a position that benefits from the broader bullish trend in the tech/AI sector.
3. Risk Control: Regardless of the strategy, maintaining small, defined-risk positions is essential given the unpredictable nature of earnings reactions in the current AI-driven market.