Unusual Activity in Nvidia Put Options Ahead of Earnings - Are Investors Still Bullish?

Globe and Mail

13-05-2025

Today, a large volume of Nivida Inc (NVDA) put options have been trading in several near-the-money strike prices tranches. This shows investors are positioning ahead of the earnings release in two weeks. Some of these trades show bullish sentiment in NVDA stock with their high short-put yields.
NVDA is up over 5% today at $129.85 per share, well up from its low on April 4 at $94.31, but still down from a Jan. 6 peak of $149.43.
So, with this large number of NVDA put trades, are investors expecting a dip in the stock or another leg up?
Unusual Put Option Activity in NVDA
Today, a large number of NVDA put options traded in several at-the-money (ATM) and out-of-the-money (OTM) strike prices (expiring this Friday and one tranche for next Friday). This can be seen in today's Barchart Unusual Stock Options Activity Report.
For example, the table above shows that over 43,200 puts were traded at the $126 strike price (May 16 expiry) - an amount that is 184x greater than the prior number of outstanding put contracts. This is indicative of a large set of institutional orders.
The midpoint premium was 81 cents. That indicates that a short-put yield of 0.643% (i.e., $0.81/$126.00) for the next 3 days. On an annualized basis (assuming this can be repeated every week for a year, the expected return (ER) is 33.4% (i.e., 52 x 0.006428).
The investor who shorted these puts would not be obligated to buy unless NVDA fell to $126, about 3% below today's trading price. Moreover, the breakeven point is $126-$0.81, or $125.19, or -3.588% below today's price.
However, the variety of put tranches with large volumes seems to imply some sort of complicated trading or hedging strategy. The reason seems to involve a positioning ahead of the upcoming expected May 28 earnings release for the fiscal Q1 2026 quarter ending April 30.
Nvidia's Expected Results
Analysts expect to see revenue slightly higher than last quarter. For example, Seeking Alpha reports that Q1 revenue will be $43.05 billion, vs. $39.33 billion last quarter. Investors want to see that the company's AI-related revenue drivers are still growing.
A lot of that sentiment will revolve around management's comments and guidance. For example, management guided last quarter that Q1 revenue will be $43 billion, plus or minus 2% (i.e., $42.14 billion to $43.86 billion).
Drilling down, data center revenue, comprising the vast majority of its sales ($35.58b in Q4 or 82% of the total), due to its AI and cloud servers, jumped 18% Q/Q in Q4. With the China tariff war this past quarter, that growth may have slowed.
Therefore, the market will be looking carefully at management comments and guidance, now that the tariff war has been paused for 90 days.
More importantly, analysts will look at Nvidia's operating and free cash flow (FCF) production. That could affect the valuation for NVDA stock.
For example, last quarter the company generated lower FCF ($15.5 billion vs. $16.787 billion in the prior quarter). This lower FCF was partly due to +32% higher capex spending ($1.077 billion vs. $813 million).
However, its FCF margin (FCF/revenue) was 39.5% in Q4 vs. 47.9% in Q3, so the margin drop was not as much as expected. Analysts will be looking to see how much further the FCF margin falls if capex spending continues to increase faster than revenue growth.
Target Prices for NVDA Stock
Revenue forecasts from Seeking Alpha's survey of 57 analysts average $200.54 billion for the year ending Jan. 2026. That reflects a 53.7% increase over the year ending Jan. 2025 ($130.47 billion), but, more importantly, reflects a +27.5% increase over the run rate from Q4:
$39.33b (Q4 2025) x 4 = $157.32b run rate revenue
$200.54b/$157.32b -1= 1.275-1 = +27.5% increase
In addition, assuming Nvidia can maintain at least a 39% FCF margin (i.e., vs. 39.5% in Q4 and 46.6% over the trailing 12 months):
$200.54 billion est. FY 2026 revenue x 0.39 = $78.2 billion in FCF
Using a 1.80% FCF yield metric, this implies Nvidia could be worth $4.344 trillion.
$78.2 billion / 0.02 = $3,914 billion
That is over $800 billion more than its present market cap of $3.19 trillion (i.e., +22.6%). In other words, NVDA could be worth +22.6% more or $159.20 per share.
Analysts tend to agree. For example, Yahoo! Finance's survey shows that the average price target of 63 analysts is $163.03, and Barchart's survey shows a mean price of $166.10.
Similarly, AnaChart shows that its survey of 34 analysts who've recently written on the stock has an average of $163.46 per share.
The bottom line is that NVDA stock still looks undervalued here. So, no wonder a large number of options have traded today.