9 Video Views·Oct 16, 2024
Options trades indicate that Nvidia (NVDA) could be ramping up for rapid growth in the fourth quarter into the first quarter of 2025, ayCrest managing director David Boole tells Morning Brief Hosts Seana Smith and Brad Smith. Boole says Nvidia’s next “catalyst simply could be seasonality,” explaining, “I've noticed that Nvidia stock has been incredibly strong in Q4 and especially into Q1." He notes this thesis is supported by recent options market trading. “We're kind of exiting this regime where I look at the options where investors have been using Nvidia options that are priced very high because the stock moves so much, they're not necessarily rich to extract some income, selling calls against long stock selling puts be willing to buy it lower. And now we're back," Boole elaborates. "It seems after this huge trade on Thursday into a regime where clients are buying Nvidia calls, and that in itself can, apart from the fundamental story, of course, can help propel the stock higher, where if there's a surge in upside call buying." He calls back to this trend being a "hallmark" of Nvidia's 2023 and early 2024 rallies: "Seems like we could be getting back to that type of regime where investors are reaching for the upside via Nvidia calls." Given the "unusual" size of Thursday’s options play, Boole says the activity could exacerbate the rally he expects from Nvidia. “There's a story in the options market, there's a story outside of the options market, [and] I think it's all intertwined. But if you have a lot of investors that are long calls on the upside and dealers and market makers that are selling these calls are hedged, as the stock goes higher, they need to buy the stock as the stock rallies.
Taking a look at NVIDIA shares this year up 172 percent. The rally cooling just a bit as of late
but an options trade this week could aid in a new rally. There's a big call trade this Thursday on
NVIDIA and joining us now for more we want to bring in David Boole. He's Baycrest Managing
Director. David it's great to see you again. So here we are with NVIDIA. We've seen a bit of a
rally so far this month. Shares up just about 11 percent. We're sitting just shy of that all-time
The catalyst simply could be seasonality. I've noticed that NVIDIA stock has been incredibly
strong in Q4 and especially into Q1. And we're kind of exiting this regime where I look at the
options where investors have been using NVIDIA options that are priced very high because the
stock moves so much they're not necessarily rich to extract some income. Selling calls against
long stock, selling puts, be willing to buy it lower. And now we're back it seems after this
huge trade on Thursday into a regime where clients are buying NVIDIA calls. And that in itself can
you know apart from the fundamental story of course can help propel the stock higher where
if there's a surge in upside call buying this was a hallmark of the rally in 2023 and early 2024.
Seems like we could be getting back to that type of regime where investors are reaching for the
upside via NVIDIA calls. It doesn't seem like this is for a daily options play but a more long-term
one. So where are the strongest contracts that you're seeing right now? Even as NVIDIA right now
this juncture is just within a couple bucks of its all-time high. So the big trade that printed
on Thursday that got a lot of people in my world speaking was unusual in the size. About 200
million dollars in option premium was spent on NVIDIA March calls. The strikes were up 20 percent
to up 40 percent. The other unusual part about this trade was that about 25 different call
strikes were bought or traded. It seemed like they were bought based on how the stock reacted
simultaneously. This is odd sometimes we call this a call a strip of options. Often you see this in
index options VIX or SPX if you're replicating something on the other side of this. So there's
a chance there's some sort of exotic structure on the other side of this trade that somebody
is hedging or it could just be an asset manager looking to get long exposure into March. Either
way this position is out there and we see the footprint in the listed option market and so
someone's playing for a rally you know into March you capture two earnings cycles November and
February and the beginning of the year January, February, March it's incredibly strong for NVIDIA.
It was up 80 percent in 2023 up 100 percent in 2024 in these first three months of the year.
So I think investors could be looking forward to possibly similar move in 2025. David when you talk
about and that really puts it in perspective right maybe the size of the move that we could see but
talk to us just about the size of the positioning there that you mentioned that really caught my
attention because how much of that really has to play into how much we could that could exacerbate
this move here to the upside and on the flip side how does volatility then potentially play into all
this? So it definitely could exacerbate it I mean there's a story in the options market there's a
story outside of the options market I think it's all intertwined but if you have a lot of investors
that are long calls on the upside and dealers and market makers that are selling these calls
are hedged as the stock goes higher they need to buy the stock as the stock rallies. Also there's
volatility exposure about six months implied volatility which this option trade was is about
50 percent which is very high if not the highest implied volatility in the S&P 500 it's one of the
one of the highest and it's not overvalued the stock actually moves that much which is
incredible for a stock of this size and if implied volatility goes up it could create a need
through the dynamics of these call options for the dealers on the other side of these calls to
buy even more stock as the stock goes higher. So it's a different regime like I mentioned earlier
compared to the last time I was on when we talked about Nvidia earnings where investors seem to be
selling calls there was a huge call short call position in the 130 strike that I talked about
might be difficult to get through that 130 strike that type of positioning is not there as much and
now it's more clients looking to play the upside and the whole move could essentially be exacerbated.
