Nvidia Call Options Pop After Price-Target Hike

NVDA is heading toward its fourth straight weekly win

Oct 25, 2019 at 10:07 AM
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RBC Capital raised its Nvidia Corporation (NASDAQ:NVDA) price target to $251 from $217 -- the highest on Wall Street, and a 27.5% premium to last night's close at $196.86. Analyst Mitch Steves pointed to Intel earnings, which showed strong data center demand, and he believes NVDA will likely experience higher growth relative to [central processing unit] CPU server demand."

In reaction, NVDA stock is up 1.7% to trade at $200.22. Should these early gains hold through the close, it would mark the equity's first close above $200 since last November. The shares have been rebounding since dipping below $133 in early June, and last week, climbed above their 320-day moving average. Plus, Nvidia is on track for its fourth straight weekly win.

Most analysts are already bullish on NVDA stock, too, with 19 of 28 in coverage maintaining a "buy" or better rating on the chipmaker. However, the average 12-month price target of $194.73 is a discount to current trading levels, suggesting more price-target hikes could come down the pike.

Options traders are more upbeat than usual toward Nvidia stock, as well. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 2.21 ranks in the 63rd annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

This trend is continuing today, with nearly 33,000 NVDA calls traded already -- five times what's typically seen at this point, and volume pacing in the 100th annual percentile. Day traders are possibly buying to open the weekly 10/25 202.50-strike calls for a volume-weighted average price of $1.11. If this is the case, breakeven for the bulls at tonight's close -- when the options expire -- is $203.61 (strike plus premium paid).

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