NVDA Options Skew Hints at Bullish Bets on AI Leader
As NVIDIA (NVDA) continues to soar on artificial intelligence (AI) enthusiasm, a closer look at its options market reveals interesting insights into how traders are positioning themselves. This article explores the current positive skew in NVDA options, historical comparisons, preferred call strikes, and what it all means for traders outlook of the stock.
Positive Skew In NVDA Options Graph
Options Implied Volatility Skew In NVDA
The current positive skew in NVDA options indicates a preference for bullish call options relative to bearish put options. This means traders are generally more willing to pay for calls that will become profitable if the stock price increases.
This skew suggests that many expect NVDA to continue its upward climb and are using out-of-the-money (OTM) calls to potentially amplify their gains from such a move.
The above graph shows a steeper implied volatility (IV) curve for upside calls compared to downside puts. This steeper slope reflects a higher premium for calls, further emphasizing the bullish sentiment.
Skew Compared to History
Historical Risk Reversal Benchmark In NVDA
While the current positive skew is a sign of optimism, it’s important to compare it to historical levels. The above chart shows a historical benchmark risk/reversal strategy that compares the cost of +5% calls versus -5% puts.
As you can see, the cost of a call over a put is currently near the higher range of the past year suggesting a significant bullish bias. However, it’s important to note that this level has been reached a few times this year already, potentially reflecting the market’s excitement about NVDA’s future.
Open Interest Preferred Call Strikes
NVDA Open Interest By Strike Chart
Analyzing the open interest by strike price paints another part of the picture. The concentration of open interest above 870, with the highest concentration around the 1000 strike, indicates that many call options are positioned for further gains.
This suggests traders believe the stock price could climb another 15% to reach the 1000 strike and potentially become in-the-money.
Conclusion
In conclusion, the current options market paints a picture of optimism surrounding NVDA.
The positive skew, high risk/reversal cost, and concentration of call options at higher strike prices all suggest that traders are largely betting on further gains for the stock. With the 1000 strike emerging as a potential near-term target, investors should closely monitor developments in the AI sector and the broader market to assess the validity of these bullish bets.
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Originally Posted March 4, 2024 – Options Skew in NVDA Near 52 Week High
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