Option Traders Make Massive Multimillion Dollar Bets On Nvidia, Microsoft

Tech stocks traded lower on Tuesday after Goldman Sachs predicted the U.S. economy would experience its fastest recovery in history following its current downturn.

Two tech stocks in particular seemed to have the attention of some extremely large option traders.

The Trades

On Tuesday, Benzinga Pro subscribers received a series of option alerts related to unusually large trades of NVIDIA Corporation NVDA and Microsoft Corporation MSFT options. Here are a handful of the biggest:

• At 11:13 a.m., a trader bought 1,500 Microsoft call options with a $170 strike price expiring on Jan. 15, 2021 at the ask price of $15.65. The trade represented a $2.37 million bullish bet.
• At 11:53 a.m., a trader sold 1,000 Microsoft call options with a $162.50 strike price expiring on April 24 near the bid price at $7.30. The trade represented a $730,000 bearish bet.
• At 11:08 a.m., a trader bought 1,100 Nvidia call options with a $275 strike price expiring on May 15 at the ask price of $22.40. The trade represented a $2.46 million bullish bet.
• Less than a minute later., a trader sold 1,300 Nvidia call options with a $245 strike price expiring on April 17 at the ask bid of $33.55. The trade represented a $4.36 million bearish bet.
• At 11:41 a.m., a trader bought another 1,100 Nvidia call options with a $275 strike price expiring on May 15 at the ask price of $22.40. The trade represented a $2.46 million bullish bet.
• Less than a minute later., a trader sold another 1,300 Nvidia call options with a $245 strike price expiring on April 17 at the ask bid of $33.55. The trade represented a $4.36 million bearish bet.
• At 11:41 a.m., a trader bought another 1,100 Nvidia call options with a $275 strike price expiring on May 15 at the ask price of $22.40. The trade represented a $2.46 million bullish bet.

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Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the massive sizes of the largest trades mentioned, it’s possible that at least some of the trades were institutions hedging against large stock positions.

Bullish Catalysts For Tech Stocks

The big trades in Microsoft options come after the company said Sunday that some of its cloud services have witnessed an uptick in usage since the COVID-19 outbreak forced many Americans to start working from home. On March 18, Microsoft said its Teams video conferencing app added 12 million new users in the course of a week. On Sunday, Microsoft said Teams membership is up 775% in Italy in the past month, and Skype’s daily users are up 70% in that time.

Despite the doom and gloom in the market, BofA Securities analyst Vivek Arya said last week there are still plenty of things to love about Nvidia’s long-term outlook, starting with the launch of the next-generation Microsoft Xbox and Sony Corp SNE PlayStation later this year.

“The 2H launch of new Sony/Microsoft game consoles is likely to raise the bar for AAA game development, accelerate the adoption of ray tracing, and could catalyze a PC gaming GPU upcycle,” Arya said.

Bullish sentiment among StockTwits messages mentioning Microsoft was at 59.7% on Tuesday, down from its 2020 high of 92.7% on Jan. 23. Bullish sentiment among StockTwits messages mentioning Nvidia was at 37.2% on Tuesday, down from its 2020 high of 94.6% on Jan. 18.

Benzinga’s Take

The six largest option trades in Nvidia and Microsoft on Tuesday morning all came in pairs, with a trader seemingly taking profits in nearer-dated call options and rotating into longer-dated call options. The Nvidia May 15 calls purchased have a break-even price of $297.40, suggesting 12.3% upside in the next six weeks or so. The Microsoft Jan. 2021 calls purchased have a break-even price of $185.65, suggesting 16.6% upside over the next nine-plus months.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.