Nvidia’s (NVDA) options volume was through the roof on Thursday, more than 3x its average daily volume of 873,592. The cause: Nvidia’s revenue guidance for the second quarter of $11 billion was 54% higher than the analyst estimate. Its stock was off to the races.
Today, as I write this midday, its volume is 34.1 million, 12 million less than its 30-day average, while its options volume is 902,167, slightly higher than its 30-day average. With the Memorial Day weekend on tap, volumes should slow considerably for the remainder of the trading session.
As I do every Friday, I look for unusual options activity. In Thursday’s trading, I found three puts to sell that made the top 10 and look like great income plays. Not surprisingly, Nvidia is one of three.
Have a great long weekend.
Anything But Macy’s
The top unusually active put option on Thursday was Macy's (M). The department store chain’s Jul. 21 $14 strike had a volume of 20,077, 110.92x its open interest. Set to expire in 56 days, the premium income of $140 provided a 10.0% yield. On an annualized basis, that works out to 65.2%.
I know what you’re thinking: The yield is top-drawer, but Macy’s is a mess. Its stock is down 28% year-to-date, 37% over the past 52 weeks, and CEO Jeff Gennette recently announced that he would retire in February 2024 after six years running the department store chain and four decades with the company.
Only a few company men are left in corporate America, especially retail. Macy’s share price has taken a beating during Gennette’s tenure, losing half its value, but you really can’t blame the CEO. He’s tried everything to move the stock higher. But, unfortunately, investors just aren’t interested.
However, incoming CEO Tony Spring, who runs Bloomingdale’s, has done an excellent job with the higher-end banner. He’s now tasked with carrying out the company’s push to open more stores, smaller stores, called Market by Macy’s and Bloomie’s, away from the mall.
Given these stores tend to draw younger shoppers, it’s got a shot.
If the share price falls below $14 by expiration in seven weeks, the net price paid would be $12.60. It hasn’t traded that low since January 2021.
Analysts Love Microsoft
Next up is Microsoft (MSFT). Its shares are up more than 38% YTD and 229% over the past five years. The cloud hasn’t certainly helped its cause. However, the surge in artificial intelligence (AI) demand by businesses of all sizes should help keep it moving higher over the next five years.
The put in the top 10 was the June 9 $322.50 strike, expiring in 14 days—the bid price of $4.15 yields 1.3% based on its Thursday closing price of $325.92. On an annualized basis, that’s a 33.9% yield. That’s very healthy.
What are the odds you’ll have to buy the shares at expiration? They’re on a roll, up more than 12% in the last month. Given all the focus on AI, it’s hard to see them retreating by a similar 12% in the next 14 days. However, should they be put to you, your net price paid would be $318.35, 4% below where it’s currently trading.
I don’t think you should make this trade if you don’t want to own the stock for the long haul. But, of course, I say that about virtually every stock whose options I recommend.
Without the company’s brutal regulatory fight to acquire Activision Blizzard (ATVI) for $69 billion, virtually everything about its business would have come up roses. Microsoft continues the good fight because acquiring ATVI would shore up its video game business, the only real weakness in its portfolio.
While regulatory approval, if given, won’t come by June, if it does, that should provide MSFT some more life.
Nvidia Joins the Trillion-Dollar Club
As I said I would do, my third and final put option exhibiting unusual options activity and in yesterday’s top 10 is Nvidia.
Thanks in part to the 26% gain on Thursday -- it’s up more than 2% on Friday -- NVDA stock is up 172% YTD. Its market cap is less than $100 million away from the $1 trillion mark.
If it keeps reporting healthy results and guidance over the remainder of 2023, it might even hit $2 trillion. Just having fun; I’m not guaranteeing any such move.
According to Barchart.com data, Nvidia has a Strong Buy rating from the 31 analysts in its database (4.48 out of 5) with a mean target price of $285.97. You can be sure in the coming days, all of this moves higher as analysts digest what’s happening in a good way to Nvidia’s chip business.
I think it’s fair to say that if you believe in the AI movement, Nvidia should be one of your core holdings. I’m not a soothsayer, but it appears to me that it wins no matter which companies capture the imagination of tech spenders.
Although NVDA had two puts in the top 10 yesterday, I like the June 16 $350 strike. It expires in 21 days and had a bid price of $6.65 for a net price of $343.45. Currently trading over $388, it’s unlikely to be put to you. Based on the closing price of $379.80, its annualized yield is 31.3%.
I’d keep watching this one. Long-term, Nvidia is a must-own.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
