1. Let's take a look at the NVDA options sentiment tool and it actually measuresToday I look key NVDA option trades for the day (yesterday, actually, it is the most recent date where the options data is final and ready) and translating them into an equivalent number of NVDA shares.If someone buys a bullish call, that adds positive “delta volume” (similar to buying shares).If someone buys a bearish put, that adds negative “delta volume” (similar to selling shares or shorting).The result is:Bullish pressure: how many “synthetic shares” were bought through options.Bearish pressure: how many “synthetic shares” were sold through options.Net option delta volume: bullish minus bearish.I already said it before: we cannot read anyone’s mind, but we can look at their behavior and see if more volume lines up on the bullish or bearish side.Important reminder for beginners:Options trades might be:pure bets on direction, orhedges against stock positions, orparts of more complex strategies.So this is sentiment, not a crystal ball.2. Large institutional traders in NVDA: slightly bullish on balanceLet's first look at the big hitters (Trader Size: Large Institutional):Bullish pressure: about +1,609,080 shares worth of deltaBearish pressure: about -1,286,080 shares worth of deltaNet imbalance: +322,999 deltaThat net number is like saying:“On balance, NVDA options trading by large institutions today behaves as if they bought roughly 323 thousand shares more than they sold.”The pie chart breaks this down as:55.6% bullish delta volume44.4% delta volumeSo big players are leaning net bullish, but not by a crazy margin. It is not 80 vs 20. It is more like:“Slightly more green than red.”There is also a line that says Option delta volume / stock volume: 1.5 percent. That means the options activity from this group is equivalent to about 1.5 percent of the regular stock volume in NVDA that day. So institutions are active, but they are not going all-in through options.3. Small retail traders in NVDA: modestly bearish on balanceNow let's look at us little guys in the market (Trader Size: Small Retail):Bullish pressure: about +2,999,776 shares worth of deltaBearish pressure: about -3,194,951 shares worth of deltaNet imbalance: -195,175 deltaSo retail options trading in NVDA behaves as if they sold short about 195 thousand shares more than they bought.The pie chart here shows:48.4 percent bullish51.6 percent bearishSo small traders are leaning slightly bearish. Again, not a huge gap, but the weight is on the red side.Notice something interesting:Retail option delta volume is 3.2%of NVDA stock volume, which is actually higher than the 1.5 percent we saw for large institutions.Retail is more aggressive through options relative to their size, but their net stance is a bit negative.4. What happens if we combine the two?If we add the two groups:Institutions: +322,999Retail: -195,175Net result is still positive, roughly +128 thousand shares of synthetic demand across both groups combined.So the combined options order flow leans slightly bullish, but very close to balanced. The key detail is the split:Big money is mildly net long NVDA through options.Small retail is mildly net short or hedged.And the gaps are modest, not extreme.5. How this fits with the broader index pictureFrom the CME “Equities Market Overview” and the SPX/NDX reports, available at the CME, I seeVery high open interest in SPX and NDX options.A lot of puts outstanding, especially in NDX.Elevated “put skew” in SPX, meaning downside insurance is more expensive than upside calls.Heavy use of spreads and near term expiries around this NVDA earnings window.That told us the overall market tone is defensive:participants are staying invested, but wrapping their exposure in protection.The NVDA-specific order flow adds a nice layer:Large institutions in NVDA: gently leaning to the bullish side.Retail in NVDA: gently leaning to the bearish side.Combined: almost neutral, with a small bullish tilt.So we get a consistent story:The index options world is cautious and heavily hedged.Within that, NVDA option flows show institutions are willing to take a bit of upside risk, while retail is more nervous.6. What readers should take away (without trying to outguess earnings)For investingLive readers, here is the practical takeaway:The crowd is not one thing.Institutions and small traders are positioned differently around NVDA. That alone is a reminder that there is no single “smart side” of the market. Oh, and no, one can not automatically jump into a conclusion that institutions are smarter as they are the "smart money" vs the "fish" in the market, the small retailers. There are cases where the little guy was right and earnings is a very strange event to successfully predict, for pretty much anyone. Also, institutional money may actually think NVDA is going down but they may be hedging, putting some money and bets on a bullish scenario after the NVDA earnings tonight.Options flows show positioning, not certainty.A bullish institutional imbalance does not guarantee NVDA will rise after earnings. It just tells you that, on balance, larger players have leaned that way on that day (yesterday, one day before that earnings, and we also have today...).The setup is tense but not one-sided.Index options are heavily hedged and skewed toward protection.NVDA options show mild institutional optimism and mild retail pessimism. It shows no big drama expected, which is interesting in the lesser like case that we will get a big surprise. The expected move of the Nvidai stock price tonight after earnings is 7.6%, according to the options market. In my experience, an actual move of apx 5%, or apx 2/3 of that expected move, is reasonable. Excluding drifts within the next weeks.This is the kind of environment where both a relief rally and a sharp drop are possible, depending on the numbers and guidance. It's good for traders to polish up on those key levels and consider trading the range.Remember that even sophisticated options traders are frequently wrong.When many traders hedge heavily against a fall and the worst does not happen, markets can rally strongly as those hedges are unwound. When the bad scenario unfolds, those hedges cushion the blow for them but can accelerate the move for the indexes.With NVDA's earnings tonight, the idea becomes much easier to see if we plug in real numbers.Right now NVDA closed around $181.36 and is trading about $183.91 in premarket.Options around tonight's earnings are pricing in an expected move of roughly 7.6% for tomorrow.That means the options market is saying something like:"A typical post earnings reaction could put NVDA somewhere in a rough band between the low $170s and the high $190s."This tells us about the size of the move, not the direction.When heavy hedging is wrong and the stock ralliesImagine a lot of traders are nervous and buy a ton of NVDA puts before earnings. Dealers who sell those puts often hedge by shorting NVDA shares or Nasdaq futures.If earnings come out and they are fine or better than feared, NVDA might jump toward the upper side of that band, closer to the high $190s.Suddenly:Those protective puts lose value quickly.Traders no longer need them and start closing or letting them expire.Dealers who were short NVDA as a hedge now need to buy shares back.That wave of buying can push NVDA even higher and lift the whole Nasdaq and S&P with it.So a market that was heavily hedged for bad news can actually produce a strong rally when the bad news does not arrive.This is what we mean when we say sophisticated options traders are often wrong. The fear was real, but the outcome did not match the protection they bought.When the bad scenario happens and hedges both protect and amplifyNow flip it. Same nervous setup, lots of puts bought, dealers hedging short, but this time NVDA disappoints and gaps toward the lower side of that expected range, closer to the low $170s.For traders who bought puts:The loss on their NVDA or tech exposure is cushioned because the puts jump in value.The hedge did its job and softened the damage to their portfolio.For the market as a whole:Dealers who sold those puts are now losing on them.To control risk they often need to sell more NVDA or index futures as the price falls.When a dealer sells a put, they are short the put, which is synthetically similar to being long the stock (with some differences in payoff shape).A long put has negative delta (it benefits when price falls).A short put has positive delta (it benefits when price rises), so it is "long" the underlying in directional exposure.Now the key part:As NVDA drops, that put moves deeper in the money, so the delta of the long put moves toward -1.If the long put is going toward -1 delta, the short put (the dealer) is going toward +1 delta.So even though the price is dropping, the dealer’s position becomes more positively sensitive to the stock - more "long" in terms of delta exposure.To get back to neutral, they need to add negative delta, which they do by selling NVDA stock or index futures.That extra selling can make the drop sharper for NVDA and for the indexes that hold it.So the same hedges that protect the traders who bought them can accelerate the move in the stock and the broader market once the negative scenario actually happens.The core lesson for tonightWith NVDA sitting around $183.91 in premarket and an expected move of about 7.6%, options positioning tells us the market is braced for a big swing but does not know which way it will go.Heavy hedging:Does not guarantee a drop.Can lead to a big rally if earnings are better than feared and hedges get unwound.Can also amplify a fall if earnings are bad and dealer hedging adds to the selling.That is why even when options traders look very sophisticated, they are still often wrong on direction, and why it is safer to treat their positioning as context, not as a forecast.Last but not least, a bearish bird whispered in my ear that it would love to later buy the dip at NVDA if it gets to $145. That bird might be wrong, and it actually even isn't saying that NVDA will get there (or when) but it if does... then.... you know what to look for. ALways at your own risk. What do you reckon will happen at Nvidia tonight? Coment below. This article was written by Itai Levitan at investinglive.com.