Duan Yongping shorting NVIDIA, has NVIDIA reached its peak?

Last Friday, NVIDIA's stock price experienced a dramatic swing of 11.7%, from a 5% surge to a 5.5% drop, with a trading volume exceeding $100 billion. This raised concerns in the market about the end of NVIDIA's rise, subsequently leading to the end of the stock market's upward trend.

On the evening of March 8th, Duan Yongping revealed his short position in NVIDIA through options trading. He sold 101 call options with a strike price of $1000 expiring on March 8th (i.e., short selling, with a total investment of around $13,000). These options are out-of-the-money (worthless at expiration), with an estimated profit of over 80%.

Does Duan Yongping's short position in NVIDIA options mean he is bearish on NVIDIA?

Not necessarily. Duan Yongping has always enjoyed short-term trading. Even with his largest holding in Apple, he often plays with options on a light scale. He frequently shares his views on buying and selling call and put options on social media platforms.

In his subsequent replies to netizens, Duan Yongping stated:

It's just for entertainment, without any specific views; shorting NVIDIA was just an intraday trade; NVIDIA's significant increase has its reasons.

The reason for NVIDIA's decline:

1. One explanation is that a large number of bullish NVIDIA options were exercised last Friday.

Some analysis suggests that as the weekend approached, traders began to exercise in-the-money call options on NVIDIA, which then prompted options traders to sell NVIDIA stocks to unwind their hedges, leading to the sell-off on Friday.

Options market makers, when selling call options, simultaneously buy NVIDIA stocks to hedge risks. After the call options are exercised, they sell the stocks to unwind the hedges.

With the enthusiasm for artificial intelligence soaring, many investors have been betting on NVIDIA's stock price through the options market. Data shows that traders poured as much as $20 billion into NVIDIA options in the last week of February, far exceeding investments in other companies in the "Magnificent 7." Over the past month, NVIDIA options trading accounted for a quarter of the single-stock options market.

1. Since NVIDIA's earnings report on February 21st, the stock has surged by as much as 44% in the short term, leading to many profit-taking activities. Similar to a scenario where, before an earnings report is released, the stock drops for three consecutive days due to profit-taking.

What is the outlook for the future?

Analysts believe that considering NVIDIA's data center and capital expenditure by major factories, the net profit for 2024 (calendar year) is expected to exceed $55 billion, and by 2025 (calendar year), profits are projected to surpass $70 billion. The current stock price corresponds to a P/E ratio of around 40 to 30 times, without factoring in the valuation changes brought about by the bull market, hence it is not considered expensive. Short-term stock price trends are influenced by too many factors to determine, but the long-term trend remains unchanged.