Option Traders Make Bullish Bets On Nvidia

Shares of NVIDIA Corporation NVDA traded higher Wednesday after competitor Advanced Micro Devices, Inc. AMD launched its RX 5500 graphics cards, which are expected to undercut Nvidia’s $149 GTX 1650.

Rising competition and a ramping trade war didn't deter some large option traders from making bullish bets on Nvidia on Wednesday morning.

The Trades

On Wednesday, Benzinga Pro subscribers received two option alerts related to unusually large Nvidia option trades.

At 9:36 a.m., a trader sold 537 Nvidia put options with a $175 strike price expiring Oct. 18 near the bid price at $2.787. The trade represented a $149,661 bullish bet.

At 10:31 a.m., a trader sold 550 Nvidia put options with a $165 strike price expiring in Jan. 2021 at the bid price of $23.301. The trade represented an $1.28 million bullish bet.

Editor's note: A previous version of this story said the 9:36 a.m. put was a bearish call.

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 large size of the second Nvidia option trade it could potentially be an institutional hedge.

Bears Throwing In The Towel?

Semiconductor stocks, including Nvidia, have endured heavy selling pressure in the past year due to a cyclical downturn in the chip market, particularly in China. However, Nvidia shares have rebounded in the past six months as expectations rise that the slumping market could turn the corner in the next couple of quarters.

The two large option traders on Wednesday were selling puts rather than buying calls, suggesting they may be abandoning hopes that another Nvidia downturn is around the corner. Given the company’s long-term exposure to growth markets such as artificial intelligence, autonomous vehicles, Internet of Things and virtual reality, Nvidia has plenty of long-term tailwinds if it can worth through near-term issues.

Benzinga’s Take

Nvidia’s near-term outlook is still troubled by the same market dynamics that drove revenue and EPS down 17.4% and 48.8% last quarter. The trade war with China is another overhang given more than 40% of its revenue comes from China.

However, the large call seller on Wednesday seems to be looking past those short-term headwinds all the way to January 2021. He or she may be betting on a trade deal with China and/or a return to double-digit revenue and earnings growth from Nvidia as the chip market improves in time.

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

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