Amazing Prediction! NVIDIA Plunges 6%, Put Options Shine with $6 Million in a Single Day
NVIDIA's stock price plummeted, and options market traders made over $6.5 million through short selling. The traders bought 60,000 put option spread contracts, betting that the stock price would fall below $119 by Friday. The trade quickly paid off as NVIDIA's stock price dropped 6.5% in early trading on Wednesday. In addition, AI giants such as ASML and TSMC also saw their stock prices decline. Reasons for the stock price drop include concerns about export restrictions and a rotation out of tech stocks. The Biden administration may implement stricter restriction measures
According to the financial news app Zhitong Finance, amid the sharp drop in the stock price of NVIDIA (NVDA.US), traders who shorted the company in the options market seem to have made over $6.5 million.
On Tuesday morning, 60,000 put spread contracts with a strike price of $119/$115 were bought, with a total cost of approximately $1.23 million. The buyer bet that the stock price would fall below $119 by Friday, while also reducing costs by selling put options with a strike price of $115, which would limit potential profits from selling. For the trade to be "in the money" at expiration, the stock price would need to drop nearly 6% from Tuesday's closing.
This trade quickly paid off as NVIDIA's stock price fell by 6.5% on Wednesday morning, dropping below $119, leading other chip manufacturers to follow suit. NVIDIA and other tech giants have led the market higher this year, but Wednesday's sell-off caused the S&P 500 to drop by over 1% and the Nasdaq to plummet by over 2%.
In the morning on Wednesday, around 58,000 similar spread contracts changed hands in a single trade, with a transaction amount of approximately $7.83 million. While it cannot be confirmed if this was the same investor, market participants suggest that this trade seemed to be a closing position. Therefore, if it was the same trader, they would have made a total profit of over $6.5 million.
On Wednesday, AI giants like NVIDIA, ASML (ASML.US), and TSMC (TSM.US) all declined, with ASML experiencing the largest drop of over 12%, while chip manufacturing and design giant TSMC's stock price plummeted by over 7%.
The reasons for the decline in these three stocks include concerns about export restrictions and a broader rotation out of tech stocks. Additionally, restrictions on exporting semiconductor technology to China may become stricter.
According to Bloomberg, the Biden administration is considering implementing stricter restrictions, including controlling foreign-made products that use even minimal amounts of U.S. technology. The current restrictions have already affected U.S. companies' ability to sell products to China. NVIDIA's sales in China as a percentage of total data center revenue decreased from 19% in the 2023 fiscal year to 14% in the 2024 fiscal year.
It is worth noting that semiconductor companies Intel (INTC.US) and GlobalFoundries (GFS.US) saw their stock prices rise during trading. Both companies are seen as beneficiaries of the Biden administration's push to shift chip production to the United States