How NVIDIA Corporation (NVDA) Could Run to Even Higher Highs

NVIDIA Corporation (NVDA) hit a record high yesterday, putting bearish options bettors on notice

by Alex Eppstein

Published on Oct 26, 2016 at 10:38 AM

NVIDIA Corporation (NASDAQ:NVDA) has been a spectacle in 2016. The semiconductor stock has surged nearly 117% at $71.38, and yesterday hit a record high of $72.30. What's more, based on the skepticism seen in the options pits and beyond, NVDA shares have the potential to race even higher.

Diving right in, short-term options traders have been extremely put-skewed toward NVIDIA. The stock's Schaeffer's put/call open interest ratio (SOIR) sits at 1.26, with puts outstripping calls among options expiring in the next three months. What's more, this ratio ranks in the high 79th percentile of its annual range. If NVDA continues to trek northward, a capitulation among option bears could create tailwinds.

On a related note, there's a heavy accumulation of put open interest at the underfoot 70 strike, looking at options expiring in the front three months -- with roughly 7,500 contracts in residence. As the hedges related to these bearish bets unwind ahead of the various expiration dates, the round-number level could serve as a reliable foothold for the foreseeable future.

The skepticism being levied toward NVDA doesn't stop there. Short interest jumped 20% during the two most recent reporting periods to 64.4 million shares, and now accounts for a lofty 12.5% of the stock's float. Based on the chipmaker's average trading volumes, it would take about seven sessions to cover these bets -- suggesting there's plenty of cash on the sideline to fuel NVIDIA's fire.

Last but not least, a majority of the 24 analysts covering NVIDIA Corporation (NASDAQ:NVDA) rate it a "buy" or better. Nevertheless, 10 brokerage firms still maintain a "hold" or a "strong sell" opinion, leaving the door wide open for upgrades. If that's not enough, the stock's consensus 12-month price target of $66.61 registers south of current levels, suggesting price-target hikes -- like yesterday's bullish note from B. Riley -- could come down the pike.

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