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NVIDIA Corporation (NVDA) Option Bears Pile On Ahead of Earnings

NVIDIA Corporation's put volume ran at four times the average daily pace yesterday

by 7/16/2014 10:39 AM
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Put players were active in NVIDIA Corporation's (NASDAQ:NVDA) options pits yesterday, with the contracts trading at nearly four times what is typically seen. With the company tentatively scheduled to report quarterly earnings the first full week of August, short-term contracts were particularly in demand. This was evident by the stock's 30-day at-the-money implied volatility (IV), which rose 4.3% to close at 32.5% -- its highest perch since early May.

Specifically, the most active NVDA strike was the August 19 put, where 6,200 contracts changed hands. The majority of these crossed on the ask side, IV moved higher, and nearly all of the volume translated into open interest overnight -- collectively indicating the purchase of new positions. Breakeven at the close on Friday, Aug. 15, when back-month options expire, is $18.42 (strike less the volume-weighted average price of $0.58). Profit will accrue on a move down to zero, while risk is limited to the initial premium paid, should NVDA settle north of the strike at expiration.

Technically speaking, NVDA has done well on the charts, and is up 21% this year to $19.38. More recently, the stock has bucked its historical bearish bias for July -- tacking on 4.5% month-to-date -- and has not traded south of the aforementioned breakeven mark since July 8. However, the security is facing a stern layer of resistance in the $19.60 neighborhood -- an area that capped NVDA's mid-June rally, and marks this morning's intraday peak.

As noted, though, NVIDIA Corporation (NASDAQ:NVDA) is tentatively slated to unveil its quarterly results the week of Aug. 4, and if past is prologue, the stock could see some earnings-induced upside. Over the past eight quarters, in fact, the equity has tacked on an average single-session post-earnings gain of 1.2%, which widens to 2.8% when going out one week. For the company's fiscal second quarter, the consensus estimate is for a per-share profit of 20 cents -- 4 cents more than what NVDA earned one year ago.


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