NVIDIA's Friday stock crash, is it due to options trading?

Wallstreetcn
2024.03.11 01:11
portai
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Some analysis indicates that as the weekend approaches, traders have started to exercise bullish options on NVIDIA, prompting options dealers to hedge by selling NVIDIA stocks, leading to the selling pressure on Friday.

On Friday, without any news driving it, NVIDIA's stock price went from a 5% increase to a sharp 5% drop, with an intraday swing of 10%. What happened?

One of the reasons is that a large number of NVIDIA call options were exercised on Friday.

Some analysis points out that as the weekend approached, traders began to exercise in-the-money call options on NVIDIA, which then prompted options dealers to sell NVIDIA stocks to unwind their hedges, leading to the sell-off on Friday.

When options market makers sell call options, they simultaneously buy NVIDIA stocks to hedge their risks. After the call options are exercised, they sell the stocks to unwind the hedges.

With the enthusiasm for artificial intelligence soaring, many investors are betting on NVIDIA's stock price through the options market. Data shows that traders poured as much as $20 billion into NVIDIA options in the last week of February, far exceeding investments in other companies in the "Magnificent 7".

These options include those that protect against NVIDIA falling to $350 in March, as well as options that will generate profits if the stock rapidly rises to $900 or even higher in the coming months.