Why Options Traders Would Be Wise to Consider NVIDIA Calls

NVIDIA Corporation (NVDA) just breached its lower Bollinger Band, so it may be a good time to buy the shares

Alex Eppstein
Feb 24, 2017 at 11:34 AM
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NVIDIA Corporation's (NASDAQ:NVDA) is shaking off yesterday's analyst-induced sell-off. The semiconductor stock was last seen up 0.3% at $100.73, after Thursday's 9.3% plunge. However, for technical traders, NVDA shares may have just flashed a "buy" signal.

Specifically, NVIDIA broke below its lower Bollinger Band yesterday, and remains south of that key level. Speaking of stocks in general terms, this has historically been one of the most reliable signals for investors to buy shares and options traders to buy calls. On top of that, the shares could find a foothold at the round $100 level, as they did earlier this year. Support could be reinforced by peak put open interest in the front three-months' series at the century mark, totaling more than 24,000 options contracts.

nvidia stock chart with bollinger bands

Speaking of options, total open interest on NVDA rests just 1 percentage point from an annual high. And, today, intraday volume is in the 99th percentile of its annual range, with the stock still on the short-sale restricted list. Both calls and puts are trading at roughly double the pace anticipated for this time of day.

The most active NVDA options are the weekly 2/24 100- and 101-strike calls. Trade-Alert data hints at buy-to-open activity, meaning eleventh-hour bettors are anticipating a rebound in the stock by today's close, when the series expires. This simply echoes the prevailing call-skew seen among short-term options traders. NVDA's Schaeffer's put/call open interest ratio (SOIR) of 0.85 rests in the low 6th percentile of its annual range, meaning calls outweigh puts by a near-extreme margin, among options expiring in the next three months.

For those considering a trade, NVIDIA Corporation (NASDAQ:NVDA) presents an excellent options buying opportunity at the moment. The stock's Schaeffer's Volatility Index (SVI) of 39% sits in the low 22nd annual percentile, hinting at muted near-term volatility expectations. Not to mention, NVDA shares have a Schaeffer's Volatility Scorecard (SVS) of 97, meaning they've tended to make larger-than-expected moves in the past year, relative to what the options market has priced in.

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