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Calls were popular on NVIDIA Corporation (NASDAQ:NVDA - 12.33) on Monday, with roughly 39,000 contracts crossing the tape (nearly four times the average daily volume for call options). More than 37% of yesterday's volume centered on the February 13 call, which emerged as the most active strike on the day. The majority of these contracts changed hands at the bid price, and open interest added 10,826 positions overnight, hinting at sell-to-open activity.
By writing these calls, traders are betting on NVDA to stay south of the $13 mark through the close on Friday, Feb. 15, when front-month options expire. In this best-case scenario, the out-of-the-money calls will expire worthless, and the speculators can pocket the full profit of $0.27 per contract, which Trade-Alert indicated was the volume-weighted average price. However, this could also be part of a larger covered-call strategy, in which stockholders are looking to protect against a pullback -- or garner some additional income -- on their shares of NVDA.
Delving a bit deeper into the information, it appears the February 13 strike has been favored among call sellers in recent weeks. Since Dec. 26, 5,766 contracts have been sold to open here, versus the 1,873 which have been bought to open. This strike is now home to peak call open interest in the front-month series, with 23,335 contracts outstanding. With implied volatility at this strike inflated relative to the NVDA's 20-day historical (realized) volatility (38% vs. 26.7%), now appears to be an opportune time to sell premium on these short-term options, as opposed to buy it.
On the charts, NVDA has shed around 16% on a year-over-year basis. The stock's most recent rally attempt was quickly stunted by its 200-day moving average. This psychologically significant trendline is currently located near the $12.90 mark, which could assist the February 13 call sellers in the near term, should it continue to serve as an overhead ceiling.