Unusual Options Activity: Nvidia (NVDA)

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  • Graphics processing firm Nvidia (NVDA) is a major player in the semiconductor space. The recent shortage hasn’t been enough to keep shares from declining. But one trader sees a big move ahead.

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  • That’s based on the May $480 calls. Over 8,500 contracts recently traded, a 56-fold rise in volume from the prior open interest of 153. The trade expires in 70 days, and with shares around $500, the calls are about $20 in-the-money.

    The trader paid about $50.00, or $5,000 per contract, on average.

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    The company has seen massive demand in the past year, with earnings up 53 percent and revenue up 61 percent in the past year. Even with the recent pullback, shares are up 78 percent, more than double the market’s performance in the past year.

    Action to take: The tech companies have gotten oversold, particularly in the semiconductor space. Strong demand for electronics suggests that the company’s rising profitability will continue in the past year.

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  • While the option is a bit pricey, being an in-the-money trade means traders will avoid losing too much money if shares don’t surge back to all-time highs.

    Nevertheless, should shares get back to the $600 range, the option could be worth as much as $120 at expiration for triple-digit returns. Traders should look to play a rebound, and take profits before expiration, likely with high double-digit returns.