NVDA: Why It Is a Good Idea to Pay Attention to Paper
NVDA: Why It Is a Good Idea to Pay Attention to Paper
I'm sure it is not news to any of you that NVDA was up over 1.00 after the bell on blow out earnings:
Many traders were actually caught off guard by the news. However, my suspicions are that the smart paper pretty much knew exactly what NVDA was going to do after the close. The below is a print out of all trades made in NVDA options that were great than 175 contracts. I highlighted all of the bullish trades in green:
Of all the trades almost all of them are bullish, whether they are short puts or long calls. This is a classic example of how paying attention to the directional flow of large orders can be quite the indicator. Right now I believe every one of these trades is going to be in the black come tomorrow morning. Although, I would venture to say that most of these trades deltas have been hedged off tonight.
Retail traders can use this knowledge to their advantage in one of two ways:
1. Use paper flow to sniff potential trade candidates: if a trader sees a lot of directional paper buying or selling a stock, it is usually worth a look to see what is going on.
2. Use paper flow to confirm or kill an opinion: bearish NVDA? I donít care if you are or are not, but if every major order is trading against your opinion, then it is probably a good idea NOT to enter that trade
One important note: Because of delta neutral trading, it is important NOT to form a directional opinion completely based on paper flow. Paper flow can be deceiving and point one in the wrong direction. As we all know, up can be down and vice a versa with delta neutral trading.
Final Note:
The VIX was not buying yesterday's rally at all, as there is a large ammount of pent up market fear right now. I think Europe needs to stop causing problems.
Images courtesy of LiveVol.
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Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
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