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If Wall Street analyst sentiment is anything to go by, practically everyone loves tech juggernaut Nvidia (NVDA). A manufacturer of advanced semiconductors – particularly graphics processing units (GPUs) – Nvidia provides the hardware demanded by the latest artificial-intelligence-based protocols and platforms. So, NVDA stock on paper makes for an excellent long-term investment.
Right now, the chipmaker enjoys a consensus Strong Buy assessment, breaking down as 33 Strong Buys, two Moderate Buys and four Holds. About the only area of concern that exists within this defined framework is that just a month ago, the overall assessment was slightly superior: 34 Strong Buys versus “only” 33. Advocates are likely losing little sleep over this hiccup.
What’s more, the average price target among experts stands at $141.29. There are slight variations regarding this target, depending on how sources calculate the forecasts, with some publications choosing to include averages that extend back only to a certain timeframe. Overall, though, the consensus is that NVDA should land somewhere north of $140.
Currently, the most optimistic target calls for a price per share of $200. That’s a target set by Rosenblatt Securities. Combined with the Barchart Technical Opinion indicator pegging NVDA stock a 56% Buy, retail investors may be tempted to jump on the bandwagon.
After hitting a closing high of $135.58 on June 18, NVDA stock looks like it’s on shaky ground. Yes, Wednesday’s price action saw a massive surge of nearly 13%. However, NVDA still remains below the psychologically significant $120 level.
With so much going on – and so much at stake – it’s helpful to understand what the smart money might be doing.
Options Flow: A Powerful Tool to Decipher NVDA Stock or Any Other Security
One of the most important tools that Barchart Premier members have access to is the full range of data found in its Options Flow screener. Unlike other popular derivative-market screeners such as unusual options activity, Options Flow focuses exclusively on big block transactions likely placed by institutional or professional traders.
In other words, if an average retail trader buys one contract of an NVDA put or call, the Flow algorithm will ignore it. It’s getting rid of all the white noise that everyday market data can easily create, especially for a popular entity like NVDA stock. Instead, it focuses solely on major transactions, making the information much more meaningful.
Even better for Barchart users, the tool is constantly being improved. Right now, the screener automatically calculates the net trade sentiment for the day, which is the aggregation of premiums of options with bullish and bearish sentiment. Interestingly, while NVDA stock soared in the open market during the midweek session, net trade sentiment sat at $-38.8 million in favor of the bears.
Drilling into the top five options with bearish sentiment, all of the derivatives were calls. By deduction, these were sold calls. Here, call sellers (or writers) are collecting the premium (or the price the bullish trader pays for buying the call) in the assumption that NVDA stock will not rise above the listed strike price.
For the five calls, the strike prices range from $100 to $132. That’s significant of course because as mentioned earlier, the average price target is $141.29. Apparently, the smart money does not believe that’s in the cards for NVDA stock.
A Warning, Not a Guarantee
Just like a “check engine light” in a vehicle, the implications behind the options flow screener doesn’t guarantee anything. In a vehicle, the light could be indicative of something serious. Or it could be something very simple (i.e. cheap to fix) or even an electronic gremlin. In the case of the market, even the smartest traders make mistakes.
Still, it’s an invitation to conduct further investigation. For example, based on the size of the volume relative to open interest, the JAN 17 ’25 132.00 Call warrants a closer look. It appears that a trade is being opened in that there are several bullish traders buying the $132 call. However, the smart money seems more than willing to sell that same option.
If one were to read into this setup, it’s possible that NVDA stock could march higher. However, the smart money doesn’t seem to believe that Nvidia can set a new all-time closing high. Instead, it might chart a triple-top pattern.
Students of technical analysis will understand that triple tops are bearish reversal patterns.
On the date of publication, Josh Enomoto 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.
