NVIDIA Corporation (NVDA) Record High Draws Option Bulls

NVIDIA Corporation (NASDAQ:NVDA) is seeing a rare surge in call volume

by Karee Venema

Published on Sep 30, 2016 at 2:15 PM
Updated on Jun 24, 2020 at 10:16 AM

A rumored $30 billion takeover -- and a big rally in the broader stock market -- is helping to lift semiconductor stocks today, with chipmaker NVIDIA Corporation (NASDAQ:NVDA) along for the bullish ride. In fact, NVDA stock hit a record high of $69.19 earlier, and was last seen up 2.1% at $68.84. While eleventh-hour traders are eyeing even higher highs through tonight's close, today's accelerated call volume bucks the withstanding trend seen in NVDA's options pits.

By the numbers, around 26,000 call options have changed hands so far -- two times the average intraday pace -- compared to roughly 12,000 put options. Most active is NVDA's weekly 9/30 68-strike call, where it looks like new positions are being purchased. If this is the case, the goal is for NVDA to continue rallying through tonight's close, when the weekly options expire.

More broadly speaking, though, long puts have been initiated at a quicker-than-usual clip relative to calls in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NVDA's 10-day put/call volume ratio of 0.66 ranks in the 65th percentile of its annual range.

Even more telling is NVDA's Schaeffer's put/call open interest ratio (SOIR) of 1.25. Not only does this show that puts outweigh calls in the front three-months' series of options, but it sits just 17 percentage points from a 52-week peak. Simply stated, short-term speculators are more put-heavy than usual toward the equity.

Looking at the charts, it's likely some of the recent put buying -- specifically, at out-of-the-money strikes -- is a result of shareholders protecting paper profits against any unexpected downside. NVDA -- along with several of its sector peers -- has put in a standout technical performance in 2016, more than doubling in value. However, if past is precedent, NVIDIA Corporation (NASDAQ:NVDA) and its fellow chipmakers could encounter some historical headwinds in the fourth quarter, especially given the upcoming U.S. presidential election.

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