The stock market rally has come under some selling pressure as second-quarter earnings season winds down. But several top-rated growth stocks remain on the earnings calendar, including Nvidia (NVDA). The chipmaker pared a sharp loss Wednesday after a 3.5% drop Tuesday and remains in a strong uptrend.

Also, after earnings jumps in the latest week from TJX Companies (TJX) and Lowe's (LOW), several more top-performing retailers are on the earnings calendar. They include Dick's Sporting Goods (DKS), Five Below (FIVE), Ollie's Bargain Outlet (OLLI) and Burlington Stores (BURL).

Five Below reports after the close Wednesday. Results from Dick's, Ollie's and Burlington are due early Thursday.

Nvidia Stock Shines

It looked like Nvidia was dead in the water when the stock hit a low of 86.62 in early April. But Nvidia stock reversed higher on April 7 and never looked back.

Nvidia gapped above its 200-day moving average on May 13 after the company inked a major data center supply deal with Saudi firm Humain. Nvidia stock rode its 10-day moving average higher from there but just recently lost support at its 21-day line.

Nvidia stock gapped up the last time the company reported earnings in late May. Earnings and revenue growth have slowed in recent quarters, but that's largely due to tough comparisons.

Adjusted profit for the April-ended quarter increased 33% to 81 cents a share. Revenue growth was impressive again, soaring 69% to $44.1 billion. But Nvidia predicted revenue for the July-ended quarter that was slightly below views.

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The company said its revenue outlook would have been about $8 billion higher, but Nvidia took a hit due to China export restrictions at the time for its H20 artificial intelligence chips. Nvidia recorded $4.5 billion in charges in the quarter due to excess inventory of the chips.

Revenue in Nvidia's data center segment did even better, up 73% to $39.1 billion. The company's gaming division, which includes chips for playing 3D games, also did well, with revenue up 42% to $3.8 billion.

According to FactSet, profit for the July-ended quarter is expected to increase 48% to $1.01 a share. Revenue is seen rising 53% to $45.9 billion. Results are due Wednesday after the close.

Watching Veeva Systems

Veeva Systems (VEEV) is a provider of cloud-based software to the life sciences industry, including big pharma, biotech and medical device makers. Veeva's software basically helps health care firms streamline operations and bring products to market faster.

Veeva soared in late May when the company reported results for the April-ended quarter. Revenue came in at $759 million, up 17% and nicely above the $728 million estimate from analysts at the time. Subscription revenue increased 19% to $634.8 million, while operating margin expanded to nearly 31%.

The company cited strong adoption of its Vault CRM product, released in May 2023, which connects sales, marketing and medical teams on a single platform. Veeva recently counted 80 customers on the platform, with plans to reach 200 within a year.

Veeva's earnings report is due Wednesday after the close, and the stock has been holding its gains. Veeva tried to clear a flat base during the week ended July 25, but the breakout stalled. It's still near highs and trading near its 10-week line. Analysts see fiscal second-quarter profit rising 17% to $1.90 a share, with revenue up 14% to $768.5 million.

Other top-rated growth stocks on the earnings calendar include Heico (HEI), a big leader in IBD's highly ranked Aerospace/Defense group. Earnings are due Monday after the close. Heico hasn't recovered much after a sharp downside reversal on Aug. 5.

Buy-now-pay-later firm Affirm (AFRM) reports late Thursday. The stock is near the top of a base that started taking shape in mid-February.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows investors to buy a stock at a predetermined price without taking a lot of risk. The strategy is best used during stock market uptrends and should generally be avoided during stock market corrections. Here's how the option trading strategy works:

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First, investors should identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases.

Others might have broken out already and are getting support at their 10-week moving average for the first time. A few also might be trading tightly near highs and are refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

A call option equates to a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified level, known as the strike price.

The Next Step

Once you've identified a bullish setup in the earnings calendar, check strike prices with your online trading platform or at Cboe.com. Also, make sure the option remains liquid with a relatively tight spread between the bid and ask.

Investors should look for a strike price just above the underlying stock price — that's out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn't too expensive.

It's best to choose an expiration date that fits a risk objective. But investors should be mindful that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out.

Buying time in the options market comes at a higher cost. Also, keep in mind that implied volatility tends to rise before an earnings report. That can push up the cost of options.

Nvidia Stock Option Trade

With Nvidia close to a test of its 10-week line, it could make sense as a call-option trade.

When Nvidia stock traded around 174.75, a slightly out-of-the-money weekly call option with a 175 strike price and an Aug. 29 expiration came with a premium of around $6.60 per share. That was 3.7% of the underlying stock price at the time and just below the risk threshold of 4%.

One contract gave the holder the right to buy 100 shares of Nvidia at 175 apiece. The maximum loss comes in at $660 – the amount paid for a 100-share contract. Remember that Nvidia would need to rise to 181.60 for the trade to break even, factoring in the premium paid.

The expected move in the options market for Nvidia is about 13 points up or down. Traders can find this number by adding the call premium and put premium for the in-the-money strike of 172.50, expiring Aug. 29.

Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.

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