Interest in chipmaker Nvidia has exploded.
From the stock's average daily volume (more than 10 times that of some similarly sized and priced companies) to the total options open interest (more than six times that of similarly sized and priced companies), investors are appearing to pile into a semiconductor stock that's tripled over the last year.
For example, about 750,000 options contracts on Nvidia are outstanding, while similarly sized Celgene, Qualcomm and United Technologies have about 260,000, 580,000 and 100,000, respectively. An average of 30.3 million Nvidia shares have traded daily this year, far above the aforementioned companies' average daily volumes of 3 million, 5.9 million and 2.2 million, respectively.
"It's a trader's favorite and it should be a long-term investor's favorite, too. Nvidia scores very high in our momentum rankings," Oppenheimer technical analyst Ari Wald said Monday on CNBC's "Trading Nation," adding that he ranks it a momentum stock.
As far as near-term key levels to watch for the $157 stock, Wald highlighted $168 to the upside — its peak earlier this month — and to the downside $142, which is this month's low. Though the stock could see consolidation below $168, should the shares break above that, it would indicate "that the longer-term uptrend is resuming."
As long as Nvidia shares trade above the support level of $142, as well as their 20-day moving average, Wald said, "you can consider the near-term trading action is higher — and the trend is higher."
Pacific Crest on Tuesday upgraded its rating on Nvidia, citing rising demand in the cryptocurrency space for its graphic computing units even though "sustainability is in question." The firm just two months ago downgraded the stock.
Peering into the options market activity on the semiconductor name, Harvest Volatility Management portfolio manager Dennis Davitt calls Nvidia "a stock that is made for options."
"Options allow you to get yourself exposure with limited risk and in a stock that moves around as much as this stock is — that's always a good thing to have. The real interesting thing we are seeing in Nvidia is a real demand for upside calls," Davitt said Monday on CNBC's "Trading Nation."
The stock has vacillated between about $95 and $168 per share this year.
"As a matter of fact, the demand for upside for people trying to get participation in this stock — without risking too much money by buying those calls — has kind of disjointed the market," he added, pointing out that the call options are now becoming more valuable than comparable puts.
The strong interest in the call options actually creates an opportunity for those who own the stock, Davitt said.
Investors who own shares of Nvidia can sell a call with a striking price $30 above where the stock is currently trading and simultaneously buy a put with a striking price $20 below where the stock is for roughly no money.
"So you get paid, in essence, to insure your position," Davitt said. "And that's just because there are so many people playing options in Nvidia right now and it's on a daily basis one of the highest options contracts out there."
Disclosure: Neither Davitt nor his firm own shares of Nvidia.