Is Nvidia the New Tesla? Options Traders Place Their Bets
Traders are ramping up their bets that the blockbuster rally in Nvidia’s shares will accelerate after Wednesday’s earnings report. 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 data through mid-August. 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 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.
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