(Bloomberg) — Options traders are betting on more volatility in Nvidia Corp. shares after last week’s DeepSeek-triggered upset.
Concerns that cheaper artificial intelligence models developed by the Chinese startup could lead to reduced hardware spending sent Nvidia plunging early in the week, triggering a selloff in the broader US stock market. While relative calm was soon restored, traders piled into Nvidia March options — both puts and calls — driving implied volatility up sharply. Now investors also have to deal with a fresh jolt in stocks after US President Donald Trump imposed tariffs on key trading partners, sending Cboe Volatility Index futures jumping in overnight trading.
“Options positioning is certainly a far cry from the YOLO/MOMO right-tail bid that we have seen in the past few years, when investors couldn’t get enough call options,” Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets wrote in an email, referring to Nvidia positioning. Traders’ buying of bullish contracts added momentum to the share surge that drove the broader equity bull market. Now, “Nvidia skew remains elevated and investors are still demanding downside protection through earnings,” she added.
On Wednesday and Thursday, Nvidia’s open interest climbed by more than 1 million contracts in the March puts and calls at strike prices around the market level, according to data compiled by Bloomberg. That, along with the rising volatility, signals options were being mostly bought.
Investors were “relentlessly” purchasing bearish puts on Thursday, piling into March $118, $120 and $122 strikes, said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. The contracts, expiring March 21, offer protection against volatility not just for Nvidia’s Feb. 26 earnings but also the GTC AI conference between March 17 and 21, as well as the Federal Reserve’s interest-rate announcement on March 19.
Despite a sharp drop and concerns over demand for Nvidia’s chips going forward, dip buyers emerged early last week, helping the stock erase some of its losses.
“It was among the biggest buy-versus-sell imbalances that I’ve seen at our shop and that I can ever recall,” said Steve Sosnick, chief strategist at Interactive Brokers.
Still, Nvidia shares had their biggest weekly loss since September 2022 and fell below their 200-day moving average, a key technical level. A further drop could trigger more selling.
Options are implying a 9.8% one-day move after the company’s earnings report, which would be the biggest move in a year. Before last week’s selloff, the market was pricing in just a 7.8% swing.
Nvidia will host the GTC AI conference, featuring a keynote address from Chief Executive Officer Jensen Huang. The event in the past has often been a venue to announce new designs and give updates on products and features.
More broadly, positioning across semiconductor stocks also indicates investors’ demand to hedge against downside moves. The cost of options that protect against a 10% decline in the next three months versus a 10% gain in the VanEck Semiconductor ETF, known by its ticker SMH, jumped to the highest level since September.
The implications of cheaper AI models raised by DeepSeek are that others might follow suit, said Jon Zauderer, head of US specialist sales and TMT specialist at Citigroup Global Markets. That could drive away spending from Nvidia’s graphics processing units to custom application-specific integrated circuit chips produced by companies like Broadcom Inc. or Marvell Technology Inc., he added.
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