NVDA, GRPN Options – Unusual Trading Activity – November 23, 2012
This week we’re taking a look at some very unusual options trading activity in Nvidia (NVDA) and Groupon (GRPN).
As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason…
Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
NVIDIA Options (NVDA)
Options on graphics chip maker NVIDIA (NVDA) are experiencing a large amount of trading activity this week.
So far this year, shares of NVDA have fallen 15% to around $11.50. And they’re down a whopping 30% from the 52-week high of $16.80. However, the shares are near support of multi-year lows at current levels.
And at least one trader thinks NVDA will find support and move higher from here.
Typically NVDA has around 7,500 options traded on it in any given day. So when we saw option volume spike to over 43,000 earlier this week, we knew something was up.
As it turns out, more than 37,000 of those contracts were on the January 2013 $11 put. There was only open interest of 3,513 prior to the activity. So, it’s safe to say this is new trade.
The trader sold blocks of 18,000 and 17,500 for the bid price of $0.36. As the seller of the put options, the trader collected a cool $1.278 million.
If NVDA holds above $11 through the January expiration, the put options will expire worthless and they’ll get to keep the $1.278 million.
However, if NVDA falls below $11, they will be on the hook to buy 3.55 million shares of NVDA at $11 apiece. But since they collected the $0.36 per share in options premium, they’re essentially buying the shares at $10.64.
This is a savvy move by the trader…
NVDA is near a multiyear low. If the stock bounces back in the weeks ahead, they’ll pocket some quick profits when the options expire worthless.
But if they stock continues to fall, they’ll get to buy shares of the stock at a deep discount to where they can buy the shares today.
Either way, the trader is looking for the downtrend in NVDA to come to an end. The only question is will it hold above $11 in the short term or will they have to buy the stock and wait for the turnaround to happen down the road.
Groupon Options (GRPN)
Option volume on the daily deal website Groupon (GRPN) spiked earlier this week.
Shares of the beleaguered social media website are currently trading for under $4.00 per share. The share are down 85% from the 52-week high $25.84. But the shares are rebounding after reaching an all time low of $2.60 earlier this month.
At least one trader doesn’t think GRPN has much more upside. They sold a block of 10,000 of the July 2013 $4 calls sold for a bid price of $0.70. And they collected $700,000.
The trader believes GRPN will be below the $4 strike price when the options expire in July. And if it is, they’ll get to keep the $700,000 in premium they collected.
This is almost certainly part of a covered call position. If GRPN continues to rally beyond $4, the trader will be forced to sell their shares at $4 per share.
Is this a good trade?
It all depends on where the trader bought the stock. If they’re selling 10,000 contracts, they must own one million shares of the stock.
If they bought a million shares of the stock near the lows at $2.60, it’s a brilliant trade. However, if they’re into one million shares of GRPN at more than $4.70 per share, they’re almost guaranteeing a loss on the trade.
Either way, the trader doesn’t see much hope for GRPN regaining its former highs anytime soon. And that’s one thing I can agree with.
More Options Ideas…
That wraps up this week’s unusual options trading and volume…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!
Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
