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NVIDIA Option Players Bet on Support at $12

NVDA's December 12-strike put is being sold to open in today's session

by 11/29/2012 2:18 PM
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Option players have been circling around NVIDIA Corporation's (NASDAQ:NVDA - 12.06) short-term puts, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR). Specifically, NVDA's SOIR of 0.49 ranks in the 60th percentile of its annual range. In other words, traders are more put-heavy than usual toward the stock, among options with three months or less until expiration.

This trend is being continued in today's session. Roughly 17,000 put contracts have crossed the tape at last check, representing almost three times the average intraday put volume. For comparison's sake, just over 3,400 call contracts have changed hands, about half of those expected.

The December 12 put has emerged as the most popular, with 15,900 contracts trading at this near-the-money strike. The majority of the volume came from one block of 11,000 contracts, which changed hands for a bid price of $0.32. According to Trade-Alert, this block was marked as being opened, indicating the initiation of new positions. By selling these puts to open, the trader expects NVDA to remain north of $12 through December expiration. In this best-case scenario, the contracts will expire worthless, and the speculator can pocket the initial premium collected.

Digging a bit deeper, it seems option players have preferred the sell-to-open strategy in regard to NVDA's December 12-strike put. In fact, since Sept. 4, traders have sold to open 2,630 contracts here, versus 754 puts that have been bought to open.

Technically, NVDA's time on the charts has been less than impressive. On a relative-strength basis, the equity has lagged the broader S&P 500 Index (SPX) by nearly 13 percentage points over the past 60 sessions. What's more, the equity is staring at a dreary 23% year-over-year deficit. The stock's most recent rally attempt was quickly halted by its 32-day moving average, which has surrendered only two daily closes since early September.

The stock is teetering around $12 in today's session. However, NVDA could find some options-related help to remain above this mark, as peak put open interest in the December series currently resides at the 12 strike. Should this layer fail to hold as support for NVDA over the next three weeks, though, the December 12 put sellers may be required to deliver the stock at the strike price, regardless of how far the equity falls.


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