Nvidia reinvigorates the "AI faith" with its strong performance, with traders betting over $20 billion on options last week, with the most active option contracts wagering that Nvidia will rise to $800 to $850 in the short term.
On February 26, media reports stated that over the past week, traders' bets on stock options related to Nvidia exceeded $20 billion, surpassing the total bets on Tesla, Meta, Microsoft, Apple, Amazon, and Alphabet combined.
The hottest of these was Nvidia call option trading, with traders anxious not to miss out on further gains by Nvidia. Following Nvidia's earnings report, the volume of call options contracts was pushed to over 1 million, reaching the highest level since November of last year, with the largest proportion of option contracts betting that Nvidia will rise to $800 to $850 in the short term.
As Nvidia's stock price soared, investors who purchased a large number of call options received substantial returns, further attracting more investors to join the bullish Nvidia camp.
Henry Schwartz, Vice President of the Chicago Options Exchange, noted a "snowball effect" surrounding Nvidia's call options:
As more and more investors participate, this trading activity becomes increasingly active, creating a "self-reinforcing" trend.
Is Nvidia not up enough? Goldman Sachs has rated Nvidia as "the most important stock on the planet," with the largest open interest in call options for Nvidia even reaching a strike price of $1,300, implying that a 16% jump following Nvidia's earnings release is still not enough.
On Thursday, Nvidia experienced a globally watched single-day surge, which added $277 billion to its market value, the largest single-day valuation increase in history, surpassing Meta's recent gain of $197 billion.
Media reports indicate that ETFs specifically designed to increase exposure to Nvidia have also become popular recently. A fund called GraniteShares 2x Long NVDA Daily ETF, launched at the end of 2022, has attracted nearly five hundred million dollars in net funds. The fund has risen over 100% in 2024 and has soared nearly 650% since its inception.
As of now, the ETF remains popular, with a net increase of $263 million over the past month.
The frenzy around Nvidia has also spread to other AI concepts. In the past month, the volume of options trading for Advanced Micro Devices (AMD) has almost doubled the average level, with call options betting its stock price could rise to $1,000 (currently at $975.52). A pair of AMD call options expiring on Friday were almost in the money, becoming the options with the highest trading volume that afternoon.
There's also strong demand for long-term options, indicating an optimistic market outlook on AI concept stocks in the long run. Nvidia's put option premiums have fallen to their lowest levels since October last year, while the premium of Advanced Micro Devices' one-year call options over put options has jumped to its highest level since May; the one-month call option skew for the VanEck Semiconductor ETF is hovering near historical highs.
As tech stocks led by Nvidia propel the market to new highs, Wall Street also voices warnings, suggesting this rally is very similar to the dot-com bubble of the early 21st century and poses a risk of correction. The market surge sparked by Nvidia's AI enthusiasm represents only an early stage and will not last forever.
A Bank of America report notes that the top 5 stocks in the U.S. stock market have contributed to 75% of the S&P 500's gains to date. The top three tech stocks account for 90% of the tech sector's gains so far — the concentration in U.S. stocks has reached its highest point since 2009.
JPMorgan also states that the valuations of U.S. tech giants are too high, with the market's gains relying on a few super-weighted stocks. Under the catalyst of uncertain macro-financial environments among other factors, a significant drop in these few stocks could lead to market volatility.