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NVIDIA Corporation (NVDA) Traders Eye a New Multi-Year Peak

NVIDIA Corporation has struggled against the $19 mark in recent weeks

by 3/27/2014 11:03 AM
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Overall volume in NVIDIA Corporation's (NASDAQ:NVDA) options pits accelerated to almost three times the average pace on Wednesday. Calls were the contracts of choice, outpacing puts by a nearly 3-to-1 margin. Although NVDA has met stern resistance at the $19 mark recently, a number of traders bet on a breakthrough of this technical ceiling over the next several weeks, or perhaps hedged their bearish bets against one.

North of 6,800 April 19 calls changed hands yesterday -- 84% on the ask side. Implied volatility edged higher on the day, and a healthy portion of the volume translated into open interest overnight, pointing to buy-to-open activity. All other factors being equal, breakeven at expiration for these call buyers is $19.25 (strike plus the volume-weighted average price of $0.25), or territory NVDA has not explored since June 2011.

As touched upon, NVDA has encountered resistance at $19 in recent weeks, and since hitting a new multi-year high of $19.05 on Feb. 24, has yet to find its way back above of this overhead mark. With more than 11% of the stock's float sold short, a portion of the activity at this out-of-the-money strike could be at the hands of short sellers hedging against any unexpected upside.

Regardless of the motive, now is an opportune time to scoop up NVDA's front-month options at a relative bargain. Specifically, NVIDIA's Schaeffer's Volatility Index (SVI) of 28% ranks lower than 77% of similar readings taken in the past year.

On the fundamental front, NVIDIA Corporation (NASDAQ:NVDA) on Tuesday revealed plans to build a new graphics processor dubbed Pascal, which CEO Jen-Hsun Huang called "essentially a supercomputer." The news was met with a price-target hike to $19 from $17 at FBR yesterday, but NVDA has failed to capitalize on the bullish brokerage note. At last check, the equity was sitting 0.3% below breakeven to trade at $18.00.


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