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Option Brief: NVIDIA Corporation (NASDAQ:NVDA) hit its highest point since mid-2011 earlier today, on rumors that David Einhorn's Greenlight Capital had established a long position in the graphics chipmaker. Though the stock has pulled back some, it is still sitting 1.6% higher at $18.83, bringing its year-to-date advance north of 17%. As such, calls are trading at more than three times the normal intraday rate, and the stock's 30-day at-the-money implied volatility (IV) is 8.1% higher at 31.1%, indicating growing demand for short-term NVDA options.
In the driver's seat again this afternoon is the security's April 20 call, which has seen more than 10,600 contracts change hands -- more than two-thirds at the ask price, suggesting they were bought. What's more, IV is on the rise at the out-of-the-money (OOTM) strike, and volume outstrips open interest. All told, it appears a significant number of the contracts were freshly initiated on NVDA -- a portion of which are confirmed by data from the International Securities Exchange (ISE).
Today's call buyers are anticipating the stock will continue its rally and finish above $20 at the close on Thursday, April 17, when the front-month options expire. Given that NVDA has only two weeks to make the 6.2% move, delta on the option is a slim 0.21, denoting a roughly 1-in-5 chance of an in-the-money finish. Even if the shares are sitting below the strike price when the calls expire, however, the traders will merely part with the initial premium paid.
Although we have to this point assumed a "vanilla" long-call strategy, another tactic may be afoot among today's OOTM call buyers. Specifically, because more than 11% of NVIDIA Corporation's (NASDAQ:NVDA) outstanding float is sold short -- which would take nearly eight sessions to cover, at the equity's average daily volume -- it's possible the traders are short sellers using the options as protection against extended gains.