Unusual Options Activity: Nvidia (NVDA)

Graphics processing unit manufacturer Nivida (NVDA) has been on a tear this year, with shares more than doubling. One trader sees a pullback in the coming weeks.

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  • That’s based on the August 25 $460 puts. With 35 days until expiration, 9,870 contracts traded compared to a prior open interest of 157, for a 63-fold rise in volume on the trade. The buyer of the puts paid $26.30 to make the bearish bet.

    Shares recently traded for about $475, so they would need to drop about $15, or just over 3 percent, for the option to move in-the-money. Nvidia recently set an intraday all-time high of $480.88.

    The stock has had a fantastic run due to the company’s place in developing chips necessary to roll out top-of-the-line AI. That’s led to rising earnings, and the expectations of even higher growth in the coming year.

    Action to take: Shares have jumped so high this year that the stock has gone from trading at 48 times earnings to 242 times earnings. Shares need some time to cool off and let the valuation catch up with the opportunity. Interested investors can likely get a pullback to the low $400 range to start buying in the months ahead.

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  • For traders, the August puts don’t have much time to play out, but they should move higher if shares trend lower in the coming weeks. As a close-to-the-money trade, the option could return mid-double-digit returns on a share price pullback.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.