Shares of NVIDIA (NVDA) may finally be making the move that investors were hoping would happen.
The AI chip giant’s stock moved higher Tuesday on speculation that SEO CEO Jensen Huang finished selling company stock under a trading plan adopted earlier this year.
Huang’s sale of six million shares worth around $713 million is finished for the time being, according to published reports from Barron’s.
Headlines having been thin on NVIDIA for the last few weeks, any sign of optimism has been taken as a green light for faithful NVIDIA bulls.
Tuesday’s rally moves the stock above the $120 price mark and the stock’s 20- and 50-day moving averages.
Those trendlines have been providing stubborn resistance for the company’s stock since the end of August. Both trendlines are trading in short-term bearish conditions, suggesting that NVIDIA may still threaten a move lower.
The stock’s close above $120 marks its first close above the critical price since August 29. Shares have been sparring with this round-numbered price level since mid-June when the stock found support after its decline from the stock’s all-time highs at $140.75.
It all comes down to the options market.
Over the last month, options investors have turned the $120 price into a battleground for both the bulls and bears.
Last Friday, more than 220,000 options contracts expired at the $120 put and call strikes. The $120 strike price held by far the most open interest for both puts and calls.
Traders had been speculating heavily that the stock would break above $120 before last Friday by purchasing an extremely large number of options contracts at that price.
Historically, large tranches of call open interest at one strike act as resistance for the underlying stock.
Last Friday, more than 220,000 options contracts expired at the $120 put and call strikes. Now that those options have expired, the stock is more likely to try moving higher.
But there’s a catch
Options traders are already drawing the same battle line in the October expiration options on NVIDIA.
The October puts and calls – which expire on Friday October 18 – currently have more than 115,000 contracts between them, far more than any other strike price in the October expiration series.
This suggests that options traders are speculating that the stock will make an aggressive move above or below $120 before that date. It also means that the stock may face continued pressure at the same $120 for another three weeks.
Investors will want to pay close attention to the stock’s movement around $120 over the next few days. A move back below this sensitive price may cause short-term traders to accelerate their selling as they fear that the stock’s bearish trendline are dominating the daily price movements lower.
Support for the stock should remain in place at $110 as bearish options traders have accumulated large put positions at the October $110 strike.
If shares of NVIDIA break back below $120 the “trade” will be to buy this last dip to $110 ahead of the strong end of year seasonality.
Shares of NVIDIA remain in a long-term bullish trend with a target price of $150.
