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Short-term speculators are circling around NVIDIA Corporation (NASDAQ:NVDA - 12.34) today, targeting options on both the call and put side of the fence. Specifically, the stock's 2/8 12.50-strike calls and 2/8 12-strike puts have seen roughly 1,600 and 3,300 contracts trade, respectively.
Nearly all of the contracts traded at NVDA's 2/8 12.50-strike call have gone off at the ask price, and volume is easily outstripping open interest, hinting at buy-to-open activity. By purchasing these out-of-the-money calls for a volume-weighted average price (VWAP) of $0.11, traders will profit with each step north of $12.61 (strike plus the VWAP) NVDA takes through next Friday's close, when the weekly options expire. This represents a 2.2% premium to the stock's current price. Delta for this call (according to Trade-Alert) is perched at 38%, representing a more than 1-in-3 chance the option will finish in the money by expiration.
Meanwhile, 92% of the 2/8 12-strike puts have crossed at the ask price, and implied volatility was last seen 2.8 percentage points higher, suggesting the initiation of new positions. Breakeven for these out-of-the-money puts is $11.93 (strike less VWAP of $0.07), or 3.3% below present levels. Delta for this put is sitting at negative 21%, meaning for each dollar NVDA loses over the next week, this put will add $0.21. (Conversely, for every dollar the stock adds over the next week, this option will lose $0.21.)
On the charts, NVDA has been a long-term laggard, with the shares down around 20% year-over-year. Despite rebounding roughly 11% from its annual low of $11.15 reached in mid-November, the stock's advance has been halted by its 200-day moving average. The equity is now hovering just north of breakeven for 2013.
Regardless of where NVDA lands by the close next Friday, today's call and put buyers can rest easy knowing the most they have risked is the modest premium paid.