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Option Brief: Calls were easily the options of choice on NVIDIA Corporation (NASDAQ:NVDA) yesterday, trading at more than two times the daily average, and outpacing puts by a nearly 6-to-1 margin. All 10 of the most active strikes were contracts that expire in the next three months. Against this increased demand for short-term options, the equity's 30-day at-the-money implied volatility (IV) rose 7.8% to 28.8%.
Diving deeper, a sharp bounce off of its 10-day moving average brought NVDA within a chip-shot of multi-year high territory yesterday, prompting a number of speculators to bet on extended gains over the next several weeks -- or perhaps protect their bearish bets against one. Specifically, NVDA's April 19 and 20 calls attracted notable attention. The majority of the collective 14,439 contracts that traded at these front-month strikes switched hands on the ask side, pointing to buyer-driven activity. What's more, IV ticked higher at each strike, and open interest rose overnight, making it safe to assume that new bullish positions were initiated.
On the charts, NVDA has been making some serious headway since bottoming out at a year-to-date low of $15.32 on Feb. 5, with the shares up nearly 21% to trade at $18.56. Despite this upward momentum, traders have sold short more than 11% of NVDA's float. In light of this, a portion of yesterday's call buying -- particularly at the deeper out-of-the-money April 20 strike -- may have been the result of shorts hedging against any additional upside. As my colleague Andrea Kramer noted yesterday, the equity could be poised for a contrarian boost, as analysts continue to reevaluate their skeptical positions.
Regardless of the motive of Tuesday's call buyers, now is an opportune time to scoop up front-month bets on NVIDIA Corporation (NASDAQ:NVDA) at a bargain. With earnings not due out until the first week of May, the equity's Schaeffer's Volatility Index (SVI) of 31% ranks lower than 67% of similar readings taken in the past year. Simply stated, premium on April-dated options is attractively priced, from a volatility standpoint.