In recent times, the investing world has been buzzing with excitement over all things related to artificial intelligence (AI). This fervor has not only captivated the attention of investors but has also made a significant impact on the U.S. options market. Traders are flocking to derivatives bets in order to gain exposure to this red-hot investing theme, with options on the AI superstar Nvidia leading the charge. The data from a Reuters analysis of Trade Alert data shows that Nvidia’s options accounted for a substantial chunk of the U.S. single-stock options market, with nearly $3 billion in options premium traded on the chipmaker’s options every day on average.
The popularity of Nvidia’s options has been so pronounced in recent trading sessions that the company has surpassed Tesla as the most heavily traded name in the options market on several occasions. Nvidia’s market value briefly touched $2 trillion for the first time after its latest quarterly earnings report, buoyed by the unprecedented demand for its chips, which play a pivotal role in the generative AI trend. This surge in market value has cemented Nvidia’s position as the third-largest U.S.-listed company by market capitalization. With a weighting of 4.5% in the S&P 500, Nvidia’s shares have a significant impact on the broader index’s movements, making them a focal point for many traders.
Despite the intense trading activity surrounding Nvidia’s options, market experts believe that the hype surrounding the company and the sheer weighting it holds in the S&P 500 will continue to attract traders. According to Garrett DeSimone, head of quantitative research at OptionMetrics, Nvidia’s options are likely to remain popular due to both hype and the mechanical influence they have on various indexes. Traders have placed a variety of bets on Nvidia’s stock, ranging from downside protection to bullish wagers on the stock surpassing $900 in the near future.
While Nvidia has been at the forefront of the AI frenzy, other companies in the AI space have also experienced a surge in options volume. Companies like Super Micro Computer and Arm Holdings have seen a significant increase in options trading activity, reflecting the broader interest in AI-related stocks among investors. The impressive year-to-date performance of these companies, along with Nvidia, has only fueled the enthusiasm surrounding the AI theme in the options market.
Looking ahead, market participants anticipate that the demand for Nvidia’s options will persist, driven by both existing traders and new investors looking to capitalize on the AI trend. Despite the possibility of a slight slowdown in trading activity post-earnings, the allure of Nvidia’s upside potential is expected to remain strong. Investors who may have missed out on Nvidia’s remarkable rally may turn to options as a way to gain leveraged exposure to the stock’s future gains, without committing a large cash outlay upfront. As Steve Sosnick, chief strategist at Interactive Brokers, points out, buying options could be a strategic move for institutions looking to participate in Nvidia’s upward trajectory while managing their risk effectively.
The fervor for AI in the U.S. options market continues to drive trading activity, with Nvidia’s options taking center stage. The company’s exceptional performance and market influence have positioned it as a key player in the options market, with traders eagerly eyeing its future prospects in the AI landscape.