Nvidia options traders reposition for recovery after Jensen Huang's exit announcement

Options traders moved to lock in profits on bearish bets against Nvidia and positioned for a longer-term recovery in the chipmaker's shares on Thursday, even as the sudden leadership turmoil triggered a sharp rise in volatility, Reuters reported.

Nvidia CEO Jensen Huang's announcement that he was stepping down has raised questions about the future direction of the artificial intelligence chipmaker, which he transformed into one of the world's most valuable companies. Chief Financial Officer Colette Kress will take over as interim CEO while the company searches for a permanent successor.

According to Reuters, options market activity suggested that investors were adjusting their positions to account for the leadership uncertainty rather than abandoning Nvidia altogether. Several large trades indicated that traders were extending bullish bets into 2027, lowering their upside price targets and taking profits on downside protection.


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Data from Chris Murphy, co-head of derivatives strategy at Susquehanna, showed that some investors were rolling existing bullish positions further into the future to allow more time for a potential recovery.

In one significant transaction, an investor sold put options and purchased cheaper put options, collecting approximately $18.9 million while retaining some protection against a further decline in the stock, Murphy said.

Another investor spent around $18.8 million on call spreads, a strategy designed to benefit if Nvidia shares climb approximately 16% from current levels by March.

Other transactions involved extending bullish positions by three months while lowering their target prices, suggesting that investors were maintaining exposure but adopting a more cautious timeline for a recovery, Reuters reported.

Traders also purchased approximately 50,000 January call options, spending an estimated $45.3 million to $55 million on bets that Nvidia shares would move above current levels by the contracts' expiry, Reuters reported.

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Options provide investors with the right, but not the obligation, to buy or sell an underlying stock at a predetermined price before a specified expiry date. Call options generally benefit from rising share prices, while put options gain value when shares decline.

Nvidia shares were last down 4.84% at $165.40. The company's 90-day implied volatility climbed to approximately 52%, compared with around 33% a month earlier, reflecting heightened uncertainty ahead of its earnings report next week, according to Susquehanna data cited by Reuters.

The upcoming earnings announcement and management commentary are expected to be particularly important in determining how investors assess the company's leadership transition and business outlook.

Investors will be watching for clarity on Nvidia's strategy following Huang's departure, with the earnings report and subsequent conference call likely to influence expectations for the stock's next move.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)