Put Buyers Target NVIDIA Corporation (NVDA) After Fresh Record High

NVIDIA Corporation (NVDA) options are crossing at an accelerated rate after the stock hit a record high

Sep 19, 2016 at 3:24 PM
facebook twitter linkedin

While the broad market may have erased much of its morning rally, tech stock NVIDIA Corporation (NASDAQ:NVDA) is still up 1.9% at $64.02, fresh off a new all-time high of $65.26, seen earlier in the session. The stock has been tearing up the charts for more than a year, nearly doubling in 2016 alone, with its 50-day moving average supporting pullbacks since mid-March. As the shares continue to climb, things are heating up in NVDA's options pits.

So far today, more than 27,000 NVDA calls have traded -- roughly 1.6 times the usual intraday rate -- versus about 14,000 puts. In fact, call volume is on pace to finish the day in the 96th percentile of its annual range. But it's put action that's highlighted NVDA's options activity, with the October 50 put in the most active spot for the session. It appears traders are buying to open new positions at this strike.

This isn't the first time we've seen speculators taking aim at this deep-out-of-the-money strike, however. And it's likely the explanation remains the same -- NVDA shareholders may be picking up protective puts as a hedge against a surprise downside move. On the other hand, if they're "vanilla" put buyers, they're looking to profit as the underlying security slips below the $50 level -- a price point NVDA hasn't breached since early July.

As it happens, put buying has been more popular than usual in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.72 sits higher than 70% of the past year's readings.

It’s still an attractive time to be purchasing NVDA's short-term options, too. The equity's Schaeffer's Volatility Index (SVI) of 32% -- in the low 9th percentile of its 12-month range -- indicates relatively low volatility expectations are being priced in at the moment. Meanwhile, the stock's Schaeffer's Volatility Scorecard (SVS) has climbed to 99. That means the options market has significantly underpriced NVDA's ability to make big moves on the charts over the last year.

Outside of the options pits, there are plenty of true NVDA bears to be found. In fact, short interest on the stock shot nearly 21% higher during the two most recent reporting periods, and now represents 10.5% of NVDA's available float. At the stock's typical pace of trading, it would take more than six sessions to cover all these pessimistic positions.

The brokerage bunch, at least, remains largely in NVDA's bullish corner, with nearly two-thirds of the analysts tracking the stock maintaining a "buy" or better opinion. But should the shares continue to rally, further upgrades or price-target hikes could be in NVIDIA Corporation's (NASDAQ:NVDA) future. After all, the average 12-month price target of $64.93 sits below the shares' new high. 

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners