Nvidia Stock Could Be Poised for a Breakout

Since my last article about Nvidia (NVDA), Why Nvidia Stock Could Keep Rising, the stock has risen from $186.91 to $196.86. This increase represents an upside of about 5%. However, options traders continue to make bullish bets on Nvidia stock rising in the coming weeks.

Let’s take a closer look at the company’s technicals and recent options trades. We’ll see if a big breakout is in the cards.

Technical outlook for Nvidia stock

Let’s take a look at the daily chart to see what is going on with NVDA. Currently, the stock is floating ~20% above its 200-day simple moving average. And it has been flattening in the $190.00–$200.00 range since mid-October. It’s also trading 11.7% off the 52-week high reached in November.

To the upside, the $200.00 price level remains the key resistance area to watch. Should the stock rise above that level of resistance, it will face only two minor levels of technical resistance at $205.00 and $210.00 before moving back to its 52-week high of $222.00 

Also, NVDA’s moving average convergence-divergence or MACD pattern can indicate trend reversals. This pattern shows that Nvidia stock has been on an upward trend. The daily MACD line is well above the zero line—and it’s still rising, which is an additional bullish signal. Moreover, the weekly MACD line is also above the zero line and steadily rising, which shows strong bullish momentum in Nvidia stock.

Finally, let’s take a look at the directorial movement index or DMI. This index measures momentum by comparing successive day highs and lows. In NVDA’s case, it started sending a bullish signal since October 15.

Options traders remain bullish on Nvidia stock

The implied volatility for the NVDA options, at a $197.50 strike price that expires on November 1, stands at 34.11%. This number means investors expect some event that would cause a modest movement in one direction or another. In comparison, the SPDR S&P 500 Trust ETF’s (SPY) implied volatility stands at 11.11% for the same expiration date. 

Some traders from the options market expect the stock to rise at least 10% in the coming weeks. Let’s see the number of open calls and open puts to estimate the market sentiment.

The calls at the $197.50 strike price outweigh the put options by about 3 to 1 with 1,031 open calls to 377 open puts. As well, the calls at the $200.00 strike price outweigh the put options about 24 to 1 with 4,715 open calls to just 237 open puts. This discrepancy suggests more bullish market sentiment for NVDA stock ahead. 

Bullish options bets on NVDA stock despite sell-off

The options, which expire on December 20, saw increased call buying on October 21. As per Barchart.com, the open interest for the $205.00 calls rose by 3,300 contracts to a total of about 3,600 open contracts. A buyer of those calls would need the stock to rise to $213.5 by the expiration date. That’s a gain of about 8% from NVDA stock’s price currently.

Also, the open interest levels for the November 15 $200 calls doubled over the last week. The open contracts rose by 1,729 contracts to about 5,514 (again per Barchart.com). So Nvidia is looking like a big, bullish bet, given the transaction’s total dollar value of about $4 million. A buyer of the calls would need the stock to rise to $207.05 by the expiration date, a gain of about 5% from NVDA stock’s current price.

Finally, the open interest for the $210.00 calls that expire on November 15, rose by 728 contracts over the past week. This rise brought the total to 1,363 open contracts. A buyer of the calls would need the stock rise to $213.45 by the expiration date to break even.

Looking for other stocks that are seeing active bets from options traders? Take a look at Selling AMD Stock? The Rally Could Go On, Why Microsoft Stock Could Rise after Earnings, and Alibaba Options Traders Betting on a Bullish Jump