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Pre-Earnings Bulls Blitz NVIDIA Corporation (NVDA)

NVIDIA Corporation speculators are scooping up weekly calls

by 5/5/2014 2:06 PM
Stocks quoted in this article:

NVIDIA Corporation (NASDAQ:NVDA) is historically one of the best May performers among S&P 500 Index (SPX) components, and the stock is already flirting with a month-to-date gain of 0.9% at $18.64. What's more, it appears options speculators today are gambling on a post-earnings ascent for NVIDIA, which reports after the close on Thursday.

In afternoon trading, the stock has seen roughly 13,000 calls cross the tape -- more than double the intraday average. For comparison, fewer than 1,000 NVDA puts have changed hands. This affinity for calls marks a change of pace for the stock, as its 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 0.92 -- just 6 percentage points from an annual high.

As earnings loom, short-term options are in demand, as the equity's 30-day at-the-money implied volatility (IV) is 2.9% higher at 35.9%. Likewise, the stock's Schaeffer's Volatility Index (SVI) of 41% stands higher than 74% of all comparable readings from the past year, suggesting NVDA's short-term options are expensive, from a volatility standpoint.

In today's trading, the weekly 5/9 19-strike call has garnered the most attention by far, with more than 8,700 contracts exchanged. Ninety-three percent of the calls traded on the ask side, IV is nearly 18 percentage points higher, and volume has surpassed open interest. What's more, data from the ISE confirms that a healthy portion of the calls were bought to open.

The volume-weighted average price (VWAP) of the calls is $0.38, meaning the buyers will reap a reward if NVDA is sitting north of breakeven at $19.38 (strike plus VWAP) at Friday's close, when the options expire. Should the equity remain south of the strike through the end of the week, the buyers stand to forfeit the initial premium paid for the calls.

On the charts, NVDA has struggled beneath the $19 level, which has capped the stock's weekly advances since mid-2011. Today, the shares are up 1.3% after Susquehanna lifted its price target for NVDA by $1 to $16. Off the charts, NVIDIA Corporation (NASDAQ:NVDA) has met or topped the Street's bottom-line estimates in each of the past eight quarters, averaging a one-week post-earnings gain of 3%.


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