Nvidia dropped Tuesday on a Wall Street Journal report questioning OpenAI's growth targets, and options traders saw a sale.
Bullish bets on Nvidia returning to all-time highs piled in fast - and they're sized big.
Nvidia (NVDA -0.26%) shares slipped Tuesday after the WSJ report raised concerns about OpenAI's revenue path, which dragged down the entire AI complex, including chip stocks tracked by the VanEck Semiconductor ETF (SMH +0.81%).
Until Tuesday, Nvidia options had been cheaper to trade than the SMH ETF, since Nvidia had spent most of the past year stuck in a tight range that kept the cost of betting on it low. That changed today. Implied volatility - Wall Street's measure of expected price swings - jumped along with the stock as traders piled in.
Call volume on Nvidia was more than double put volume Tuesday. Calls give buyers the right to buy shares at a set price, while puts give them the right to sell.
Of $818 million spent on Nvidia options, $648 million went to calls, according to SpotGamma data. That's about 79% on the bullish side.
Traders are now pricing in a move of more than 10% in Nvidia by the end of May, based on the at-the-money straddle expiring May 29 - a week after Nvidia reports earnings.
The biggest trades weren't outright buys. They were spreads, which are combinations of buying and selling calls.
One trader bought a 200/260 call spread that expires next March, which is a bet Nvidia hits $260 by March 2027. Tuesday's close was $212.62, so the wager pays off if Nvidia rises 21% over the next 11 months.
Other AI names have seen wilder options activity, but Nvidia traders are taking a more measured approach.
The spread structure caps both the gain and the loss, which is what large traders use when they want directional exposure without paying full premium for a long-dated call.
Earnings drop around May 22. The straddle pricing says the market expects a move bigger than usual, while the spread bet says some traders think the bigger move comes later. Either way, the sleepy stretch in Nvidia options just ended.
