Monday's significant drop in Nvidia's share price did not deter options traders from displaying their enthusiasm for the chipmaker's stocks. Despite the 17% slump in Nvidia's shares, losing close to $593 billion in market value on Monday due to concerns over a low-cost Chinese AI model threatening U.S. rivals, traders swiftly returned to buying bullish contracts on Tuesday.
The sudden decline shook investors accustomed to the stock's continuous ascent, yet options traders were quick to capitalize on the opportunity to anticipate a recovery. According to Steve Sosnick, chief strategist at Interactive Brokers, "It's certainly been a speed bump for many but it hasn't halted the activity."
On Tuesday, call options, typically used to show confidence in a stock, outnumbered put options at a ratio of 1.6-to-1, aligning closely with the 1-year average following a decline to 1.36-to-1 on Monday.
"We've seen tremendous dip-buying," highlighted Sosnick. By 1:30 p.m. (1830 GMT), approximately 5.4 million Nvidia options contracts had changed hands at almost double the normal pace, based on Trade Alert data.
Leading up to the selloff, options traders had become notably bullish on Nvidia and AI technology, driven in part by President Donald Trump's recent announcement of a significant private-sector investment in building more AI data centers, as observed by Brent Kochuba, founder of options insights company SpotGamma.
Kochuba noted that the excess positioning before the selloff contributed to increased volatility, however, after this event, Nvidia options trading showcased a more balanced two-way trading pattern.