The surge in interest surrounding artificial intelligence (AI) stocks has ignited a flurry of activity among options traders, particularly in the case of Arm Holdings. Investors are positioning themselves for potential further increases in the company's stock price, which nearly doubled within a week.
Arm Holdings has experienced a remarkable 80% surge in its share price since Wednesday. This surge is largely attributed to the company's optimistic quarterly forecast, driven by the growing demand for its chip design technology tailored for artificial intelligence functionalities.
This significant uptick in the stock's value has catalyzed a surge in options trading for the chip designer. Trading volume has skyrocketed to approximately 490,000 contracts per day over the past three sessions.
This surge dwarfs the average daily trading volume of options observed in the month leading up to the earnings announcement, according to Trade Alert data.
Market analysts interpret this explosion in options activity as indicative of investors seeking the 'next NVIDIA.' The bullish options trading is likely contributing to further momentum in Arm Holdings' stock price.
NVIDIA, a dominant player in the artificial intelligence sector, has seen its stock price climb by approximately 220% over the past year, solidifying its position as the top-performing S&P 500 stock during that period.
By midday Monday, a staggering 600,000 Arm contracts had changed hands, with daily volume projected to reach a record-breaking 816,000 contracts. Against this backdrop, call options on Arm shares, which provide the right to purchase shares at a predetermined price in the future, were particularly active, especially those speculating on the shares surpassing $185 by the week's end.
The remarkable ascent in Arm's share price has translated into substantial profits for investors holding bullish options positions. For example, a trader who invested approximately $12.2 million in ARM January 2026 calls on February 7th witnessed the value of those contracts soar to approximately $42 million based on their latest trading price by Monday as reported by Reuters.
Despite these considerable gains, there are indications that some investors are still holding onto their call options, a behavior perceived as bullish for the stock, according to Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.
Meanwhile, there was also notable activity in Arm puts on Monday, potentially reflecting some investors' desire to lock in profits from the recent surge in the stock's value.
Although Arm's technology is not directly utilized in AI applications, companies like NVIDIA are increasingly opting for Arm's central processing units to complement their AI-specific chips, highlighting the symbiotic relationship between the two entities in the burgeoning artificial intelligence market.
13.02.2024
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