Nvidia Still Has Fans in the Options Pits

Schaeffer's Investment Research
  SEP 25, 2012 10:05 AM

Investors have taken a shine to Nvidia's weekly calls.


Despite surrendering roughly 3.4% so far this month, NVIDIA Corporation (NASDAQ:NVDA) still has a plenty of fans in the options arena. At the time of this writing yesterday, the stock had seen around 20,000 calls cross the tape -- almost double its average intraday call volume, and more than five times the number of NVIDIA puts exchanged.

Most active has been the weekly 14-strike call, which has seen close to 2,500 contracts traded on open interest of fewer than 700, pointing to an influx of new positions. Plus, more than two-thirds of the calls changed hands at the ask price, suggesting they were bought.

By purchasing the calls to open, the buyers are expecting NVIDIA to rebound within the next few sessions. Specifically, the volume-weighted average price of the calls is $0.08, meaning the buyers will reap a reward if NVIDIA bounces back atop the $14.08 level (strike plus premium paid) by Friday's close, when the weekly options expire.

However, NVIDIA is no stranger to optimistic attention in the options pits. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day call/put volume ratio of 6.20, indicating that traders have bought to open more than six calls for every put during the past couple of weeks. What's more, this ratio registers in the 75th percentile of its annual range, suggesting speculators have initiated bullish bets over bearish at a much faster clip than usual. As a result, the security's Schaeffer's put/call open interest ratio (SOIR) now rests at 0.25, indicating that calls quadruple puts among options expiring within three months. Plus, this ratio sits at a 52-week low, implying that near-term options players haven't been more call-heavy at any other time during the past year.

On the other hand, the brokerage bunch isn't so confident when it comes to NVIDIA. Currently, the stock has earned twice as many "holds" or "sell" ratings as "buy" or better endorsements.

Technically speaking, the shares of NVIDIA have pulled back along with the broader market, and were last seen lingering in the $13.58 vicinity. From a longer-term standpoint, the equity is staring up at its formerly supportive 10-day and 20-day moving averages, which have descended into the $13.60-$13.70 region. What's more, this neighborhood rejected NVIDIA's rebound attempts earlier this year, and could resume its role as a technical speed bump.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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