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Nvidia Bears Bet on a Breakdown

NVDA draws bearish attention, though technical support is close at hand

by 10/22/2012 9:23 AM
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The bears were out in force on Nvidia Corporation (NASDAQ:NVDA - 12.10) last Friday, with put volume on the tech stock rising to roughly six times the expected level. Approximately 25,000 puts and 16,000 calls changed hands during the course of the session, and speculative investors paid particular attention to the November series of options -- which assumes front-month status today.

The most active strike was the November 12 put, where 9,040 contracts were exchanged. The vast majority of these puts crossed the tape at the ask price, indicating they were purchased, and open interest at this strike jumped over the weekend by 7,249 contracts.

Traders bought to open those near-the-money November 12 puts for a volume-weighted average price (VWAP) of $0.50, which means these bearish bettors are looking for NVDA to fall below breakeven at $11.50 over the next four weeks until expiration.

The $12 level has been a critical one for NVDA, with the shares finding support here on a regular basis since August 2011. The stock is down 12.7% year-to-date, but finished Friday's session just above this technical backstop.

 Weekly Chart of NVDA since April 2011

Friday's heavy dose of put volume coincided with a negative analyst note for NVDA, as FBR cut the stock's rating to "market perform" from "outperform." Most brokerage firms are already lukewarm on the PC graphics specialist, with NVDA sporting 20 "holds" out of 32 total analyst recommendations.

Looking ahead, NVDA is due to report third-quarter earnings on Thursday, Nov. 8, with Wall Street expecting a profit of 30 cents per share. The tech concern has topped consensus earnings estimates in each of the past four quarters -- but NVDA couldn't hang onto intraday gains after its early-August earnings report, eventually ending the session on a 0.6% loss.


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