NVIDIA Corporation (NVDA) Put Buyers Brace for a Big Retreat

NVIDIA Corporation (NASDAQ:NVDA) put buyers have set their sights on the $50 mark

Sep 15, 2016 at 2:21 PM
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Tech stocks are soaring today, with chipmaker NVIDIA Corporation (NASDAQ:NVDA) flying high on an upbeat analyst note. NVDA stock was last seen up 3.8% at $62.67, after MKM Partners said both NVIDIA and Advanced Micro Devices, Inc. (NASDAQ:AMD) stand to benefit from their recent graphics processing unit (GPU) refreshes. Options traders don't appear to be buying the rally, though, with a number of speculators bracing for a quick retreat for NVDA stock.

By the numbers, about 22,000 NVDA calls have changed hands so far, compared to roughly 21,000 puts on the tape. Most active is NVDA's weekly 9/30 50-strike put, where 6,353 contracts have traded. It seems safe to assume that new positions are being purchased here, as traders brace for a breach of the round $50 mark by the close on Friday, Sept. 30 -- when the weekly series expires.

Today's options activity just echoes the withstanding trend in NVDA's options pits. In fact, the stock's top open interest position is the September 50 put, where 16,924 contracts are currently in residence. Per Trade-Alert, it appears the bulk of this action is a result of options traders buying to open the positions. However, given NVDA's impressive technical showing -- and the fact that these puts are so far out of the money -- it's possible some of this is a result of shareholders protecting paper profits against a pullback.

Regardless, now appears to be an opportune time to purchase near-term options on NVDA. For starters, the stock's Schaeffer's Volatility Index (SVI) of 35% ranks in the 13th annual percentile, indicating low volatility expectations are priced into its short-term options. What's more, NVDA's Schaeffer's Volatility Scorecard (SVS) is docked at a lofty 98, suggesting the options market has historically underpriced the equity's ability to make big moves on the charts over the past year.

Looking at the charts, NVDA has been tearing higher over the past 12 months -- up 170% -- and if past is precedent, the stock could be in a position to extend this momentum in the near term. Specifically, after hitting a record high of $63.50 in mid-August, NVDA stock pulled back to its rising 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the six other times this signal has occurred over the last three years, NVIDIA Corporation (NASDAQ:NVDA) has gone on to average a 21-day gain of 6.9%, and has been positive two-thirds of the time.

NVDA daily chart

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