Options Traders Divided on Nvidia as Chipmaker Gears Up for Earnings

Rick Wilking | Reuters

Nvidia is experiencing a slew of options activity as it gears up for its earnings report after the bell Wednesday.

While the chipmaker's stock is up nearly 50% in 2021, concerns around semiconductor supply shortages have sent shock waves through the chip space. That has led to some bifurcation in the options market, where traders find themselves divided as to where the stock could be headed when its latest earnings results cross the wire.

"We did see calls outpacing puts by [a ratio of] about 2-to-1," Optimize Advisors CIO Michael Khouw said Tuesday on CNBC's "Fast Money." "Right now, the options market is implying a move of about 5.4% [in either direction], that's pretty much in line with the 5% or so that the stock has averaged over the last eight quarters."

The number of calls traded may have outnumbered puts, but the nature of Tuesday's activity wasn't as straightforward as it might seem.

"The most active options were the 200-strike calls that expire this coming Friday. We saw over 18,000 of those trade for over $3 a contract, so buyers of those calls are obviously betting that the earnings news could be good," said Khouw.

"But I would point out that, in those most active options, the average trade size was just four contracts, so that was largely retail flow," he said. "On the institutional side, [it was] somewhat less sanguine, where we were seeing some activity in the September 180-puts, actually. So, it seems like there's a little bit of a split between how retail and institutional market participants are positioning themselves going into the event."

As of Tuesday's close, those bullish retail bets would require a 4.4% move higher by Friday expiration to break even. Meanwhile, a move below $180 would constitute a 7.5% drop for Nvidia and a bet that the semiconductor space is potentially in for a bumpy ride to close out the summer.

Nvidia was trading slightly lower in Wednesday's session.


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