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Explosive trading in Nvidia options could be dictating the whole stock market
Published Thu, Sep 12 2024•4:33 PM EDT
Yun Li @YunLi626
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Nvidia ’s wild price swings are having a strong hold on the entire market, and “insane” options trading in the chipmaker could be the culprit. The tech giant’s stunning 8% rally on Wednesday helped lift the entire S & P 500, which had earlier fallen on a mixed inflation report. Nvidia rallied almost 2% Thursday. While some believe Wednesday’s advance was driven by CEO Jensen Huang’s bullish comments about artificial intelligence , others think the action was mostly triggered by the explosion of short-term options trading activity in Nvidia. “I don’t think yesterday’s +8% ripper in the stock was fundamentally driven,” Wells Fargo trading desk said in a note to clients Thursday. The desk pointed to a host of Nvidia call options that are set to expire on Friday, and which were the most actively-traded contracts Wednesday. A call option gives the owner the right to buy an underlying security at a set price at a specified time. Investors generally profit when the underlying security rises in price. “It’s INSANE to me that the SEC has allowed the gamification of the stock market to this degree without any sort of thought as to how gamma swings will ripple through cash markets as a result of weekly (and soon to be 0DTE) single stock options, and the impact they will have on the market,” Wells Fargo traders wrote, referring to the Securities and Exchange Commission and zero days to expiration options. NVDA YTD mountain Nvidia Nvidia, which topped $3 trillion in market value earlier in 2024, is now third-largest stock in the S & P 500 after Apple and Microsoft . The chipmaker, as well as the AI story it represents, has been dominating investor sentiment all year and moving other semiconductor stocks, the tech sector and the broader market. Its average one-day percentage move over the past 50 days is 3.6%, meaning that on any given day, its market cap changes by a little more than $100 billion, according to data from the Oppenheimer trading desk. “The up and down swings in its market cap this year are like nothing we’ve ever seen,” Oppenheimer said in a note.
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