Nvidia is re-approaching all-time highs without its leveraged lovers

In the story of Nvidia’s ascent to a $3 trillion company, its operating performance has played the starring role: best-in-class revenue growth and surging profits.

But the best supporting actors have been the options buyers that sought to hitch their wagons to those shiny fundamentals – turbocharging demand for Nvidia shares in the process.

Daily call volumes traded for Nvidia averaged over 9 million year-to-date through early June, about 80% higher than their average level from 2023.

Now, as Nvidia re-approaches all-time highs, it’s doing so without much help from options-market activity. Since June 7, daily call volumes have been 64% below that prior year-to-date average. And that includes a brief spike around the large “triple witching” options expiry later that month. 

The timing is certainly a little auspicious – the big drop-offs in options activity for Nvidia have come (predictably) following major options expiries, quarterly earnings reports, and also recently, its stock split.

It’s worth considering the possibility that this measure, meant to spur more demand from retail traders by lowering the price tag for a share, may have actually depressed demand for its stock. That’s because this demand for its shares may have come at the expense of demand for call options – which have embedded leverage and provide more buying power bang for your buck.

(Put differently, one could say the stock split marked the end of a catalyst for Nvidia, and sparked a rotation in options demand to Apple, which, shortly after Nvidia’s stock split, experienced a surge in call volumes that sent shares up double digits in a matter of two days. Soon after, it appears as though that speculative fever migrated to Tesla.)

As a signal of how the tail (options) can wag the dog (the underlying stock), the total money exchanged trading shares of Nvidia has roughly moved in tandem with call-option volumes traded over the course of the year.

Demand for other forms of leveraged long Nvidia exposure also seems to have dimmed more recently. Fund flows into the GraniteShares 2x Long NVDA Daily exchange-traded fund, for instance, have slowed to a trickle since late June.

The silver lining for Nvidia bulls is that leveraged buying may have juiced the stock’s rally, but it obviously isn’t the only cause: since the split, Nvidia is up more than 8%, while the S&P 500 is up 4.3% over the same period – despite this precipitous drop-off in levered trading activity.