To The Moon

After examining Friday's new options positions, I feel there's no need to wait until Monday's market close. I can assert that this week, the battle for NVIDIA's stock price will revolve around the $800 level.

Specifically, I'm optimistic that NVIDIA will be able to maintain a price above $800 this week, although upside may be capped around the $840 level.

Let me first share the overall picture of NVIDIA's options. Although some might regret missing last week's plunge, there's no need to worry, as the next major options expiration event is on May 17th, when the monthly options for May expire, with a significant number of open interest contracts. However, the specific dynamics will depend on the price movement preferences in May, for which I'll conduct a thorough analysis as we approach that date.

The options with the highest new open interest are still the ones expiring this week. Due to NVIDIA's sharp decline to $762 on Friday, put options with strike prices between $760 and $700 saw a concentrated accumulation similar to last week. However, the open interest levels are only around half of last week's, lacking significant momentum. The put option with the highest open interest this week is the $NVDA 20240426 650.0 PUT$ , followed by the $800 and $700 puts. The top three open interest positions do not constitute a concerted force, significantly reducing the potential for a substantial downside move.

On the call side, the two main strike prices are $800 ($NVDA 20240426 800.0 CALL$ ) and $840. Based on the strike price analysis, the key level impacting NVIDIA's stock price the most is $800. This week, the stock is likely to oscillate around this level, but personally, I lean towards an optimistic outlook, expecting a close above $800.

Another reason supporting my bullish view comes from the broad market options data. The S&P 500 ETF (SPY) and the Nasdaq-100 ETF (QQQ) saw significant put option covering last week. The latest large trades are tilted towards an optimistic stance, primarily involving selling put options. Although there are numerous earnings reports this week, which could lead to increased volatility, the downside expectations do not appear particularly strong, thus unlikely to exert additional pressure on NVIDIA.

Now, let's discuss the large options trades. The notorious $2 billion trader is still holding the $NVDA 20240621 880.0 CALL$  position, so you can rest assured on that front.

Last Friday, there was a pair of NVIDIA option straddle trades with a combined value exceeding $1 billion: $NVDA 20240517 550.0 CALL$  and $NVDA 20240517 550.0 PUT$ , which caused panic among observers. Based on the strike prices, this implied a potential 27% decline in NVIDIA's stock price. Typically, such combinations are used to establish straddle strategies, but the high trade price for the call option might have raised concerns, as it leaned towards a sell stance. However, in the deep-in-the-money options market and with complex option combinations, deviations from theoretical prices due to liquidity factors are quite common. I suggest not reading too much into the implications of deep-in-the-money trades, as they often serve more of a tool-like purpose, with a bias towards the long side.

A more meaningful straddle trade involved the $NVDA 20240517 760.0 CALL$  and $NVDA 20240517 760.0 PUT$ . Whether at low or high levels, as long as the amplitude is large enough, the at-the-money straddle strategy is well-suited. I see no issue with this strategy, and as long as NVIDIA's stock price rises above $840 or falls below $680, it can be profitable, offering a better risk-reward profile compared to outright directional bets.

One trade I'm not particularly enthusiastic about is the sale of $NVDA 20240621 1100.0 CALL$  options. There are two possible reasons: either the seller believes that the recent pullback has severely dented NVIDIA's momentum, making it difficult to reach $1100 before the June 21st expiration, leading them to sell calls; or the seller holds NVIDIA stock and is selling calls to generate income as a hedging strategy.

Selling calls at low levels is a strategy where the directional view is correct but leaves a bitter taste. Indeed, it's unlikely that NVIDIA's stock price will breach $1100 before the June 21st expiration. However, would the seller feel satisfied if the stock price stalls at $1099? Clearly not – they would likely feel that they sold too early or at a loss. Remember, it's best to avoid selling call options at low levels unless it's part of a put-selling cycle trade.

In summary, my trading approach for this week is as follows: I expect NVIDIA's stock price to rise above $800 but face resistance around $840. Although I have this view, I do not recommend aggressive bullish strategies like buying far out-of-the-money calls. Instead, consider buying on dips or selling puts on dips. Selling the $NVDA 20240426 750.0 PUT$  at $750 is a relatively safe put-selling level, while the $NVDA 20240426 700.0 PUT at $700 is even safer. However, I also do not recommend selling calls, unless you were selling puts last week to initiate long stock positions and now want to sell some calls to book profits. In that case, consider selling the $NVDA 20240426 850.0 CALL$  with a $850 strike price.