Nvidia Stock Sell-Off Sparks Accelerated Options Trading

The weekly 10/26 options series is hot on NVDA stock today

It's another day of sharp losses for chip stocks, with the semiconductor sector taking a hit on weak guidance from Texas Instruments (TXN) and STMicroelectronics (STM). One name seeing notable downside is Nvidia Corporation (NASDAQ:NVDA), with the shares off 5.6% to trade at $208.60 -- on track for their lowest close since Feb. 2.

Against this backdrop, Nvidia options volume is running at nearly two times the expected intraday clip, with nearly 99,000 calls and 94,000 puts on the tape at last check. The weekly 10/26 225-strike call is most active, and it looks like a mix of buy- and sell-to-open activity could be occurring.

On the put side, the weekly 10/26 210 strike is active, where it seems new positions are being purchased. Trade-Alert pegs the volume-weighted average price for the put at $4.58, which would make breakeven for those buying the options $205.42 (strike less premium paid).

Widening the sentiment scope reveal speculators at the major options exchanges have been buying to open calls over puts at an accelerated pace in recent weeks. The chip stock's 50-day call/put volume ratio of 1.72 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 93rd annual percentile.

This upbeat outlook is seen elsewhere on Wall Street, with 17 of 24 covering analysts maintaining a "buy" or better rating on NVDA. Plus, the average 12-month price target of $296.94 is a 41% premium to current trading levels.

Meanwhile, short sellers reduced their exposure to Nvidia stock recently, with short interest down 24% in the Sept. 1-Oct. 1 reporting periods. While there are still 11.6 million NVDA shares sold short, this represents just 2% of the equity's available float, or 1.3 times the average daily trading volume.

What's surprising is the amount of optimism priced into a stock that's been struggling on the charts. NVDA has had just five positive finishes so far this month, and is pacing toward an October loss of 25.7%. At this rate, Nvidia could be on track for its worst monthly loss since July 2008. Should the shares continue to struggle, a shift in sentiment among options traders and/or analysts could create stiffer headwinds for NVDA stock.