To The Moon

This article mainly includes three parts: the mystery behind Nvidia's surge on Friday, the position adjustment of institutional big orders after earnings reports, and the prediction for the market in the first week of May. Market Review: $NVIDIA Corp(NVDA)$ Let me admit a mistake first. I said last Friday that Nvidia would likely close between $800 and $840, but it actually surged to close at $879. What happened? Because I didn't confirm the changes in option positions on Wednesday and Thursday. In fact, when Nvidia's stock price fell below $800 on Wednesday, the open interest for the $840 and $850 call options increased by 14,000 and 11,000 contracts respectively. So on Friday, with the perfect timing, market conditions and bullish sentiment, the stock opened at $838 and was squeezed higher along with the broader market rally, replicating the reverse movement on April 19th. This shows that I need to pay closer attention and check the open interest changes at key price levels during mid-week surges or plunges. $Tesla Motors(TSLA)$ After Tesla's earnings, I predicted a small chance of it hitting $170 on Friday, but it happened on Thursday instead. Oops. Institutional Big Orders Adjustment after Earnings: Let's check the companies that reported earnings and see what changes the institutional big orders mentioned in previous articles have made: $Taiwan Semiconductor Manufacturing(TSM)$ Although TSM's stock price opened lower after earnings, institutions continued to roll their options positions. After the earnings release, the $TSM 20240621 140.0 CALL$ was split over two days and rolled to the $TSM 20240816 110.0 CALL$ , with a Delta of 0.898 and total open interest unchanged at 65,000 contracts. Since the previous roll occurred when TSM was trading at a high of $149, lowering the strike price to $110 was a reasonable move. $Meta Platforms, Inc.(META)$ The far-dated $META 20260618 1030.0 CALL$ big order position remains unchanged. It now seems that this big order aimed to capitalize on the long-term benefits of a potential TikTok ban. Logically, this earnings report should have been positive for Meta, but Snap ended up benefiting instead. For the near-dated orders, a 20,000 contract position was opened in the $META 20240816 405.0 CALL$ , which seems questionable. Why do I say it's questionable? After earnings, this big order was rolled from the $META 20240517 465.0 CALL$ to the $META 20240816 380.0 CALL$ . Then, seeing the stock stabilize around $440, they changed to an all-in position in the $META 20240816 405.0 CALL$ . I'm not sure what the logic is, but the brokerage firm definitely made a killing on this order. Perhaps this institution had some inside information? Let's not speculate further and just take it as a reference. $Microsoft(MSFT)$ The previous 46,900 contract position in the $MSFT 20240517 380.0 CALL$ was rolled to the $MSFT 20240816 375.0 CALL$ . The original $380 strike was opened on February 7th when Microsoft's stock price was $407, with an option premium of $40.31. However, on April 26th, with Microsoft's closing price at $406.32, the $380 call had a premium of $30.5, losing nearly a quarter of its time value. Despite the stock price being largely unchanged, the institution lowered the strike price by $5, suggesting a less bullish trend compared to before. $Tesla Motors(TSLA)$ The craziest move was with Tesla, where instead of buying calls, an institution has been selling calls all year! The seller of 42,700 contracts of the $TSLA 20240517 200.0 CALL$ rolled the position to the $TSLA 20240816 185.0 CALL$ . A strike price of $185 implies that the institution believes Tesla's stock price will struggle to break above $185 for the entire three months from May to August. Considering how precisely the previous $200 strike was priced, could it be Elon Musk himself selling these calls? Alternatively, it could be interpreted as the institution expecting Tesla's stock price to be below $185 by the August 16th expiration. However, experienced traders generally choose a strike price that they don't expect the stock to break above before expiration. Market Trend for the First Week of May Overall, there is a heavy bearish sentiment for May. For those holding stocks, you could consider selling calls or buying puts for protection, or implement a collar strategy by selling calls and buying puts simultaneously. For stocks with relatively strong support, you could consider a sell put strategy. I'm wondering if Nvidia could again be the "culprit" behind this May pullback, potentially replicating the April 19th short squeeze on May 17th. Although there are no obvious signs of an Nvidia plunge yet, as the open interest data is large but doesn't form a chain of interconnected strike prices, we'll continue to monitor and position accordingly. $NVIDIA Corp(NVDA)$ This week's open interest doesn't seem particularly large, with no obvious abnormal signals. Institutions will likely position themselves mid-week, but breaking above $900 seems challenging for now. $Tesla Motors(TSLA)$ Over the weekend, Elon Musk suddenly visited China, and Tesla's stock price rose 6% pre-market on Monday. However, more bizarrely, someone sold 30,000 contracts of the $TSLA 20240503 180.0 CALL$ on Friday, worth $46 million. This is consistent with the previously mentioned sale of the $185 calls, so it seems reasonable. $Advanced Micro Devices(AMD)$ AMD will report earnings this week. After falling 30% since March, following the pattern of this earnings season, the probability of AMD's stock rising after earnings is estimated at 90%. On Friday, institutions already started positioning, opening 6,900 contracts of the $AMD 20240503 170.0 CALL$ . This could be in preparation for a pre-earnings rally or positioning for a post-earnings surge. For those bullish, a conservative recommendation would be to consider the at-the-money $AMD 20240510 157.5 CALL$ . $Apple(AAPL)$ On April 22nd, an institution sold 12,900 contracts of the $AAPL 20240517 177.5 CALL$ . Since Apple's stock price has failed to break above $179 twice, forming a small trading range, the $177.5 strike seems reasonably priced. Even with a positive earnings report, I don't think Apple will break above $179 in the short term. Summary The mid-week plunge made the expiring call options on Friday much cheaper, so buying them in bulk is like buying lottery tickets. However, unlike retail buyers, the purchasers this time were the lottery station operators. There's not much to say about that – sometimes misfortune can bring good luck. Therefore, it's essential to closely watch institutional big orders during significant stock declines. Although institutional big orders rolled their positions to different strike prices, most extended the expiration to August 16th, which is about three and a half months away, coinciding with the Q2 earnings season. This suggests that the overall market has lowered its expectations for a short-term rally, especially considering that I personally believe May will be a month with significant time value decay. However, institutions still chose to continue rolling their positions, indicating their belief that the opportunities outweigh the risks this year. There's not much to say about May – "Sell in May" and a heavy bearish sentiment prevail, with storms and low expectations likely, for reasons unclear. It's advisable to temporarily avoid excessive bullish positions, and collar strategies are recommended for option positions. However, don't blindly liquidate everything and miss out on this year's AI boom and long-term opportunities in tech stocks just because of fear of risk. While historical data suggests that the May pullback could be due to inertia, could this time's "culprit" be Nvidia? We'll wait and see.