Bearish Nvidia option bets spike as stock sees record-breaking reversal

Bearish Nvidia option bets spike as stock sees record-breaking reversal

The megacap chip designer’s stock shed 3.5% Thursday, relinquishing its title of largest company by market cap

Trading in bearish options tied to Nvidia Corp. spiked on Thursday ahead of a record-setting “triple witching” expiration, as shares in the chip designer swung more than 6% from peak to trough.

Volume in put options expiring on Friday with strike prices at $135 and $130 saw the biggest increases, with 365,000 and 250,000 contracts changing hands, respectively, according to FactSet data.

The jump in activity caused the ratio of put options trading in Nvidia NVDA, -3.22% to call options in the stock to spike to 0.70, compared with 0.58 on Tuesday, FactSet data show.

Some notable developments also occurred on the technical side, as shares of the chip designer and artificial-intelligence darling topped $140 Thursday morning to briefly trade at more than double their 200-day moving average for the first time in 2024, according to Dow Jones Market Data.

Occasionally, similar milestones have presaged brief bouts of weakness, although Dow Jones Market Data show Nvidia shares have historically traded higher one month later 62.3% of the time. The 200-day moving average for Nvidia was around $69 on Thursday, according to FactSet data.

Technical strategists also pointed out that Nvidia’s price chart was exhibiting a bearish pattern known as a “bearish engulfing” on Thursday. The pattern occurs when a large red price candle follows a series of smaller green candles, as the chart below from Raymond James’s David Cox shows.

The reversal in Nvidia shares comes ahead of Friday’s “triple witching” options expiration for June, expected to be the biggest ever. Nvidia options are among the most popular contracts heading into the expiration.

Adding another wrinkle to what’s expected to be a busy session on Friday, the popular Technology Select Sector SPDR ETF XLK is due for a rebalance that could see it buy roughly $10 billion worth of Nvidia shares while dumping $11 billion of Apple Inc. AAPL, -1.04% stock, according to estimates shared with MarketWatch last week by analysts at Bloomberg Intelligence.

Steve Sosnick, chief strategist at Interactive Brokers and a former Salomon Brothers equity trader, has been apprehensively eyeing the market recently as Nvidia and a handful of other megacap stocks have driven most of the gains for the S&P 500 SPX and the Nasdaq Composite COMP during the second quarter.

To be sure, “a 2% decline on a given day doesn’t mean the trade is over,” Sosnick said in an interview with MarketWatch.

Nvidia shares finished 3.5% lower at $130.78 on Thursday, after rising more than 3% at their peak earlier in the session. The 6%-plus swing made for the company’s largest intraday drop in market capitalization on record, according to Dow Jones Market Data, losing nearly $246 billion during the course of trading on Thursday.

To be sure, shares of the chip designer have risen substantially in 2024 and remained up 164% this year to date.

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