Options Traders Swarm Surging Semiconductor Stocks

An Intel call buyer just cashed in on a winning options trade

Oct 31, 2017 at 2:40 PM
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The semiconductor sector was already technically overbought coming into today, judging by the VanEck Vectors Semiconductor ETF's (SMH) 14-day Relative Strength Index (RSI) -- which closed last night at 77. But these Wall Street favorites continue to push higher, evidenced by fresh highs from NVIDIA Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC). Below we'll break down today's price action on NVDA and INTC, as well as notable options activity for the chip stocks.

NVDA Stock Hits Record High Once Again

For NVIDIA, today's 1.8% jump is nothing new, as the shares earlier touched a record high for the third straight day, topping out at $207.89 -- last seen at $207.60. The stock has nearly tripled over the past 12 months, and during the past 60 sessions, it's outpaced the S&P 500 Index (SPX) by 15.9 percentage points.

For certain, part of the equity's ascent has been assisted by a sharp drop in short interest. More or less, short interest has been on the decline all year, including a 17.9% drop in the last two reporting periods. But with just 2.6% of NVDA's float still sold short, there's not much more room for short covering.

As for options trading, some traders may be betting on more upside by buying to open the weekly 11/3 210- and 215-strike calls -- though some selling could be happening here, too. For anyone buying the calls, the goal is for the chipmaker to continue its ascent through week's end, when the contracts expire.

Intel Options Bull Eyes Higher Highs

Meanwhile, Intel stock is up 2.4% today at $45.43, after an analyst at Baird suggested the company could strike a foundry agreement with Apple amid rumors the iPhone maker is ditching QUALCOMM. INTC shares earlier hit a 17-year peak of $45.80, and are now up almost 37% since their July low.

According to Trade-Alert, this stock rally has been extremely profitable for one options trader, who seemingly closed 40,000 February 41 calls for $5.10 a piece after buying them for an average of just $1.14 earlier this month -- meaning he's banked a profit of roughly $16 million in a few weeks' time. However, he used his proceeds to roll the bullish bet up, buying to open 40,000 February 46 calls to bet on even more upside from the semiconductor concern.

Semiconductor Bull Adjusts Options Hedge

Semiconductor exchange-traded fund (ETF) SMH also hit a record high earlier at $101.94 -- last seen up 1% at $101.62, bringing its year-to-date gain to almost 42%. As such, one investor appears to be rolling a hedge position up and out, selling to close 30,000 December 95 puts while simultaneously buying to open 30,000 February 96 puts.

Put buying was already popular coming into today for the ETF. This is according to its 10-day put/call volume ratio of 11.20 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks above 79% of all other readings from the past year. In other words, long puts have been initiated relative to long calls at a faster-than-usual clip.

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