Nvidia Traders Are Wary of Call Option Put Play Before Profits

As Nvidia Corp.'s share price experiences significant fluctuations, options for hedging against these swings come at a premium

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However, derivative traders are enticed to sell contracts, aiming to earn additional yield as the stock corrects its substantial rally.

For investors who anticipate a ceiling on further stock gains in the near term, call options are emerging as an appealing prospect, according to some market observers.

Amid implied volatility hovering near year-to-date highs for the artificial intelligence leader, options bets suggesting that the chipmaker's stock will remain capped below 10% before its first-quarter earnings report on May 22 are commanding a 2% premium.

Michael Purves, founder and CEO of Tallbacken Capital, emphasizes the potential benefits of selling short-dated calls for those holding long positions in the stock

He notes that the elevated implied volatility preceding earnings suggests a degree of buyer exhaustion

Although Nvidia shares have retraced more than 20% from their intraday all-time high in March, following a staggering ninefold surge over the past 18 months, the stock's recent rebound is notable. However, given the inherent unpredictability in the price movements of AI stocks, caution remains warranted.