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How the bulls are playing Nvidia

Traders have already made money in Nvidia, and today they're looking for further gains.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,500 Weekly 25.50 calls expiring on Oct. 30 for $0.82. Equal-sized blocks were sold in the 26.50s and the 27.50s due the same Friday for $0.44 and $0.18, respectively. There was barely an open interest in any of the three strikes when the session began, which indicates that new positions were initiated.

Long calls lock in the price where a stock can be bought, while short calls obligate investors to deliver equity if a certain level is reached. That translates into a cost of $0.20 with the potential to earn 400 percent from a move to $26.50 or $27.50. (See our Education section)

NVDA is up 3.45 percent to $25.66 in afternoon trading and is up 25 percent in the last three months. It broke out to new long-term highs in August after an increased shift toward video games and away from PCs caused earnings and revenue to beat expectations. The company has also been a top pick on our premium Market Action service.

Because today's trader sold twice as many contracts as he or she purchased, he or she is effectively short 250,000 shares if the semiconductor company closes over $27.50 on expiration. So the trader probably already owns the stock and is looking to get additional leverage on a limited move to the higher strike.

Total option volume is twice the daily average so far, with calls outnumbering puts by more than 7 to 1.

The Heat Seeker identified bullish activity on Sept. 25 as well, handing our premium subscribers gains of over 60 percent with the current move.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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