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Nvidia is Slowly Becoming Trader’s Favorite Stock

Traders are ramping up their bets that the blockbuster rally in Nvidia’s NVDIA  shares will accelerate after Wednesday’s earnings report.

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Riding the frenzy of interest in artificial-intelligence technology, they have dished out more than $100 billion on Nvidia options this year, according to Cboe Global Markets About 60% of that sum is tied to call options that can be used to bet on a continued rally.

  • No other stock besides Tesla TSLA 0.41% has garnered that level of investor interest.

Options are contracts that give investors the right to buy or sell shares at a specific price, by a specific date. Calls confer the right to buy, while puts give the right to sell.

Shares of Nvidia, which makes the graphics chips used to power generative AI technology, popped 8.5% Monday and have more than tripled this year, making them by far the best performers in the S&P 500.

  • The rally went into overdrive three months ago when the company astonished Wall Street with a revenue forecast that blew past estimates.

Nvidia gained nearly $184 billion in market value on May 25, the day after its last earnings report, and helped spark a monthslong rally in other AI-related stocks that propelled the broader stock market’s ascent. The S&P 500 is up 15% in 2023, despite pulling back around 4% in August.

The activity in the options market has hit a fever pitch ahead of the next earnings report, which is due after Wednesday’s closing bell. The number of call option contracts outstanding hit a high in August, Cboe data shows.

Some of the most actively traded contracts on Monday were those that would profit if the shares kept climbing, touching $500, Cboe Global Markets data show. Some traders eyed calls tied to the shares jumping to $600 or $700.

That is well above the average move of about 7% seen after the last eight earnings releases, according to Dow Jones Market Data.

The robust activity suggests some traders are fearful of missing out on further gains in Nvidia, while others are likely eager to take advantage of the big one-day moves in its shares.

Image: Nvidia