Puts Pop After Nvidia Slashes Guidance

Nvidia cited weak China demand for its lowered revenue forecast

Managing Editor
Jan 28, 2019 at 11:45 AM
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Nvidia Corporation (NASDAQ:NVDA) is all over the news today, with the chip stock down a whopping 12.5% to trade at $138.30, after the company slashed its fourth-quarter revenue outlook to $2.2 billion versus the previous expectation of $2.7 billion. The semiconductor name cited weak China demand as a catalyst for the lowered forecast. 

But even prior to today, the chipmaker's options activity was worth mentioning. Nvidia is on Schaeffer's Senior Quantitative Analyst Rocky White's list of stocks that have attracted the highest options volume during the past 10 days, with names highlighted in yellow new to the list. In the last two weeks, 561,102 calls have changed hands on NVDA, compared to 519,275 puts.

MAO Jan 28

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that long calls in particular have dominated the picture in the last two weeks. NVDA stock's 10-day call/put volume ratio of 2.52 ranks in the 98th annual percentile, indicating a much healthier-than-usual appetite for bullish bets relative to bearish of late. Digging deeper, the February 160 call saw the largest increase in front-month open interest during this time frame.

Today, however, paints a vastly different picture. So far, about 161,000 NVDA put options have changed hands, with volume pacing in the 100th percentile of its annual range, compared to roughly 158,000 calls. Most popular is the weekly 2/1 130-strike put, where it looks like new positions are being purchased for a volume-weighted average price of $2.27. If this is the case, breakeven for the put buyers at this Friday's close is $127.73 (strike less premium paid). 

It's been a sharp 57% fall for the chip stock from its Oct. 2 record high of $292.76. Plus, NVDA's rally off its Dec. 26 annual bottom of $124.46 was stymied last week by its 60-day moving average. And while the equity has come off its intraday bottom of $131, it's still headed for its lowest close since Jan. 4.



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