Bullish Options Traders React to Nvidia Stock Upgrade

Morgan Stanley said to buy the NVDA dip

Apr 10, 2018 at 11:26 AM
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Shares of Nvidia Corporation (NASDAQ:NVDA) are up 5.6% to trade at $227.36, after Morgan Stanley upgraded the chip stock to "overweight" from "equal weight. The brokerage firm -- which also chimed in on Netflix (NFLX) -- said the stock's recent pullback could be a buying opportunity and that gaming growth will likely offset declining cryptocurrency revenue. This bullish bias is being seen in the options pits, too, with calls crossing at an accelerated clip.

By the numbers, roughly 44,250 NVDA call options have changed hands today, roughly 1.7 times the expected intraday pace. For the sake of comparison, around 31,000 puts options have traded so far.

While it's not entirely clear how traders are positioning themselves at the June 150 put -- Nvidia's most active option -- it's likely new positions are being purchased at the weekly 4/13 225-, 230-, and 235-strike calls, which have all seen notable trading so far. If this is the case, the goal is for the tech shares to extend today's upside through expiration at this Friday's close.

More broadly, options traders have been buying to open puts relative to calls at a faster-than-usual clip. 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 0.86 ranks in the 98th annual percentile.

In fact, it looks like a significant amount of this activity has centered at the June 150 put. Specifically, Trade-Alert pegs notable buy-to-open activity here last Thursday, April 5, when NVDA closed the day down 2.2%, after Citron Research said in a tweet that it's shorting the stock at $200. Given the deep out-of-the-money status of the put, it's possible shareholders were initiating options hedges against a steeper sell-off.

Looking at the charts, the last time NVDA stock traded south of $150 was last July, with the shares up nearly 133% year-over-year. And while the tech name has been pressured lately by sector headwinds, as well as the suspension of the company's autonomous vehicle tests following Uber's fatal self-driving car accident, the equity's 120-day moving average has emerged as support -- just as it did last April.




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