Unusual Options Activity: Nvidia (NVDA)

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  • One of the top-performing stocks of the past year, at least one trader sees a drop ahead for Nvidia (NVDA). That’s evidenced by the January 2022 $450 puts. Over 1,060 contracts traded hands, a 6-fold rise over the 180 contracts with open interest.

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  • Expiring in 458 days, the bet would move in-the-money if shares dropped 18 percent from their current price around $548 per share. The trader paid about $58.50 per contract on average.

    The graphics processing company is up 181 percent in the past year, or more than 10 times that of the S&P 500 index. With a beta of 1.5, shares are about 50 percent more volatile than the stock market as a whole.

    Action to take: The company’s surging share price in the past year is a reflection of future growth that has yet to materialize. As with any tech name, shares can and do pull back quickly, and an 18 percent drop from here wouldn’t be abnormal for the stock.

    That makes these long-dated options an interesting play. A bigger market pullback would lead to massive profits on the trade, but traders may just want to look at the option as a way to hedge a high-flying stock between now and the end of the year and avoid the decaying time premium.

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