Options Bulls are Charging Toward These 2 Chip Stocks

Option traders are preferring calls for chip stocks MU and NVDA

Patrick Martin
Oct 16, 2017 at 3:13 PM
facebook twitter linkedin


Options trading has been heavy on chip stocks Micron Technology, Inc. (NASDAQ:MU)  and Nvidia Corporation (NASDAQ:NVDA), as both companies received bullish analyst attention today. Here's a closer look at how options traders have been placing their bets on MU and NVDA stocks.

The 20 stocks listed in the table below have attracted the highest total weekly options volume during the past 10 trading days. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.

MAO Oct 16

Options Bulls Take Aim At Micron Stock

Micron stock is currently up 2.8% to trade at $41.52, enjoying a bump after receiving a price-target boost to $50 from $45 at Instinet. The chip stock is fresh off a 16-year high of $42.07, notched last Wednesday, and has rallied 89% year-to-date.

A short squeeze could help MU achieve its lofty new price target. Short interest increased by 14% during the last two reporting periods to 55.33 million shares, its highest point since mid-January. Should MU stock continue its ascent, it could cause these shorts to run for cover.

Micron options traders are much more confident, having shown a distinct preference for weekly calls over weekly puts in the past two weeks, with 281,746 of the former and 223,849 of the latter exchanged. Digging deeper, it appears one trader today initiated a calendar spread on the in-the-money (ITM) October 40 calls and the November 44 calls, with 30,000 contracts traded apiece. 

Furthermore, the October 40 call is also home to peak open interest, with 124,252 contracts outstanding. It appears "vanilla" buyers of the ITM calls are banking on MU stock to continue to climb as the year winds down.

NVDA Options Buyers Confident More Record Highs On Horizon

NVIDIA stock is up 1.4% to trade at $197.28, and earlier hit a record high of $198, after receiving a price-target hike to $220 from $180 at Mizuho. The security has tacked on an impressive 199% in the last 52 weeks, and the shares have been guided higher by their 50-day moving average. Last week, the company made headlines after unveiling its chips for driver-less vehicles.

However, analysts aren't entirely convinced. Of the 25 brokerages covering NVDA stock, 12 rate the shares a "hold" or "strong sell." What's more, NVDA's average 12-month price target of $169.55 is well below current levels, suggesting more hikes could be on their way.

Options traders have preferred calls over puts in the past two weeks, with 303,106 weekly calls exchanged to 175,773 weekly puts. This is reinforced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where NVDA has racked up a 10-day call/put volume ratio of 1.87, which is 5 percentage points from a 52-week high.

Those looking to bet on the equity's trajectory by buying options are in luck, if past is prologue. NVIDIA shares consistently rewarded premium buyers over the past year, per their Schaeffer's Volatility Scorecard (SVS) of 87. In other words, NVDA has tended to make outsized moves on the charts, relative to what the options market has priced in.

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter