Nvidia’s stock jumped over 6% on Tuesday, approaching a $5 trillion market cap, with shares nearly hitting $205.36. Several factors are driving this increase, including overall market momentum and new partnerships.
Nvidia has a new deal with Nokia where it will invest $1 billion. The company’s CEO is also planning meetings with US President Trump and leaders from Hyundai and Samsung to discuss AI technology. Another significant collaboration is a 1.2 billion Euro project with Deutsche Telekom for a data center in Germany.
Positive Market Influences
Strong earnings reports from firms like UnitedHealth Group, UPS, PayPal, and Celestica have helped lift the market. Additionally, Foxconn has announced plans to invest in AI and supercomputing in Taiwan, with a completion date set for 2026.
Nvidia’s stock has broken past previous limits and may keep rising. The 50-day Simple Moving Average above $180 acts as a solid support. With the Federal Reserve likely to lower interest rates and big tech earnings reports on the horizon, Nvidia’s stock is expected to continue climbing this week.
As Nvidia nears a $5 trillion valuation, implied volatility for near-term options contracts is exceeding 55%. This indicates that the market anticipates a big price move, likely influenced by the Fed’s decisions and major technology earnings. Traders should be cautious about paying high premiums for simple call options right now, as a “sell the news” scenario could sharply reduce that volatility.
For those confident in a rally toward the $216 target, a vertical call spread may be a better option than buying calls directly. Consider purchasing the November $205 strike calls and selling the $215 strike calls to fund the trade and manage risk. This strategy aims to benefit from a push towards the upper trendline while lessening the effects of any volatility drop after news settles.
Potential Market Risks
We should also be aware that reaching the $5 trillion milestone may cause resistance, leading to profit-taking. Similar situations have occurred before, such as the summer of 2023 when the stock fell over 15% after a strong period, reminding us that sharp corrections can happen. Buying puts below the crucial support level of $185 might provide protection against market disappointments from the Fed or weak tech earnings.
The options market is active, with more than 3 million contracts traded yesterday and a low put/call ratio of 0.68, indicating strong speculation for more upside. However, this extreme bullish outlook often precedes short-term pullbacks, especially with the Federal Reserve’s interest rate decision approaching. Remember that the market initially dipped after the Fed’s first rate cut in July 2024 before bouncing back; a similar response could happen this week.
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