Option Bulls Busy as NVIDIA Corporation, QUALCOMM, Inc. Feud Breaks Out

NVIDIA Corporation (NASDAQ:NVDA) is calling out QUALCOMM, Inc. (NASDAQ:QCOM), resulting in accelerated options trading

by Josh Selway

Published on Apr 6, 2016 at 11:06 AM
Updated on Jun 24, 2020 at 10:16 AM

Circuit developer NVIDIA Corporation (NASDAQ:NVDA) is down 1.6% at $35.18, with volume surging, amid news that the company is suing rival QUALCOMM, Inc. (NASDAQ:QCOM) for "unlawful abuse of dominance." Specifically, NVDA claims QCOM sabotaged one of its business segments through questionable business tactics. Meanwhile, the action is heating up in NVDA's options pits. 

Call volume is booming on NVDA, running at six times the expected intraday level, and outpacing put volume by an 8-to-1 margin. The largest trade so far centered on a block of 3,500 May 37 calls, which may have been bought to open for $1.10 per contract -- bringing this trader's initial cash outlay to $385,000 (premium paid * number of contracts * 100 shares per contract). Assuming this is a long position, the trader is hoping the stock moves above $37 by the close on Friday, May 20, when the options expire -- a time frame that covers NVDA's earnings release, tentatively scheduled for early May. 

Meanwhile, the weekly 4/8 35-strike call is the most active NVDA option overall. It appears buy-to-open activity is transpiring here, too, suggesting these traders foresee a rebound in the shares by week's end, when the in-the-money options expire.

Relatively low volatility expectations may be attracting these call players today. For instance, the stock's Schaeffer's Volatility Index (SVI) of 32% ranks in just the 13th annual percentile. Moreover, the stock's Schaeffer's Volatility Scorecard (SVS) of 96 tells us the shares have tended to make greater-than-expected moves in the past 12 months, compared to what the options market has priced in.

Historically, call buying has dominated NVDA's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 4.48 call options for every put during the past 10 days. The corresponding call/put volume ratio ranks in the high 90th annual percentile.

There's a twist, though. NVDA's short-interest ratio is 9.10, meaning it'd take short sellers almost two weeks to cover their positions, at average daily volumes. So some of the recent call buyers could be shorts buying options insurance.

Rounding things out from a sentiment perspective, the revelation of NVDA's lawsuit against QCOM was met with a round of bullish analyst attention. No fewer than six brokerages raised their price targets on NVDA, with Raymond James setting the highest bar at $42, in record-high territory.

Technically speaking, NVIDIA Corporation (NASDAQ:NVDA) has been tremendous. The stock has gained almost 61% in the past 12 months. More recently, NVDA has topped the S&P 500 Index (SPX) by 28.5 percentage points in the last 40 sessions. 

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