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NVIDIA Speculators Hope for a Post-Earnings Pop

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NVIDIA calls are hot ahead of Thursday's earnings release.

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Call traders are targeting NVIDIA Corporation (NVDA) today, with about 42,000 contracts already across the tape -- six times its average intraday call volume. Meanwhile, fewer than 5,000 NVIDIA puts have changed hands thus far.

Most active has been the August 15 call, which has seen more than 18,000 contracts traded on open interest of fewer than 7,400, pointing to an influx of newly initiated positions. Furthermore, a healthy portion of the calls have traded at the ask price, suggesting they were bought. By purchasing the calls to open, the speculators are expecting NVIDIA to muscle atop the $15 level -- a feat not accomplished since April -- within the next few weeks, which encompasses the company's turn in the earnings spotlight on Thursday.

Widening our sentiment scope, though, we find that bullish option betting is par for the course for NVIDIA. During the past two weeks, the stock has racked up a call/put volume ratio of 4.57 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), indicating that traders have bought to open nearly five calls for every put. What's more, this ratio registers in the 68th annual percentile, pointing to a healthier-than-usual appetite for calls over puts of late.

Echoing that trend, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.46 indicates that calls more than double puts among options expiring within three months. Plus, this ratio stands higher than just 28% of all others of the past year, suggesting short-term options traders are more call-skewed than usual at present.

Elsewhere, the analyst crowd is split in its opinion of NVIDIA. Currently, the stock boasts 14 "buy" or better ratings, compared to 17 tepid "holds" and zero "sell" suggestions. Meanwhile, the consensus 12-month price target sits at $16.28, implying expected upside of just 16.2% to NVIDIA's closing price of $14.01 on Monday. However, just this morning, analysts at FBR upped their price target on the stock to $17 from $15 and reiterated their "outperform" recommendation, bolstering the shares of NVDA about 2% higher to linger in the $14.30 neighborhood.

From a longer-term perspective, the equity is on pace to end the month atop its 50-month moving average for the first time since March. However, the security is still staring up at its 20-month trendline, which has acted as a ceiling since June 2011.

As alluded to earlier, NVIDIA is scheduled to unveil its quarterly figures after the market closes on Thursday. Historically, the firm has matched or exceeded Wall Street's per-share profit projections in three of the past four quarters, according to Thomson Reuters.



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

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