How a Bearish Exodus Could Boost NVIDIA Corporation (NVDA)

Option bears and short sellers have been circling NVIDIA Corporation (NVDA) of late

Dec 2, 2016 at 10:37 AM
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NVIDIA Corporation (NASDAQ:NVDA) has been sensational in 2016. Based on its current perch at $86.33, the stock is up 162% year-to-date, and the top performer on the S&P 500 Index (SPX). Plus, the shares recently strung together a series of higher highs in late November. Nonetheless, put options have been heating up.

Specifically, put open interest on NVDA currently ranks in the 99th annual percentile, with over 243,000 contracts in tow. Call open interest pales in comparison, at roughly 178,500 contracts. Moreover, among strikes in the front three-months' series, NVDA sports a Schaeffer's put/call open interest ratio (SOIR) of 1.97. Not only does this ratio indicate puts nearly double calls, it also outranks 98% of all other readings from the past year.

Along similar lines, over the past 10 weeks, traders have bought to open 0.79 NVDA puts for every call at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). While call-skewed from an absolute perspective, the corresponding put/call volume ratio outstrips 80% of all readings from the last year, hinting at a relative preference for bearish bets over bullish. Provided these puts aren't protective in nature, a capitulation among the doubters could contribute to tailwinds.

Short interest has been building toward the technical outperformer, too. During the last two reporting periods, these skeptical bets increased nearly 8%, and now account for almost 13.4% of NVDA's total float. In other words, there's plenty of cash sitting on the sidelines to fuel a short-squeeze rally.

For those seeking an entry point on NVIDIA Corporation (NASDAQ:NVDA), the 40-day moving average has acted as a strong layer of support in recent months -- and would be ideal, according to Schaeffer's Quantitative Analyst Chris Prybal. Whether the semiconductor stock will actually pull back that far is another question, as the 20-day trendline appears to be serving as a foothold at the moment.

nvda daily dec 2


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