Stocks Owned by Nvidia Saw a Surge in Bullish Bets Days Before Filing Sparked Massive Gains

Trading activity in bullish options linked to two small-cap companies associated with chipmaker Nvidia Corp experienced a surge last week shortly before the company submitted a routine filing. Although Nvidia's involvement with these companies was already public knowledge, the release of Nvidia's first 13-F filing with the U.S. Securities and Exchange Commission (SEC) on Wednesday triggered a rally in the shares, resulting in substantial gains for those holding these call options on the day the contracts were set to expire.

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Nano-X Imaging, a small Israeli medical-device company, saw a significant increase in options volume for bullish call options just before the filing. According to FactSet data, there was virtually no trading in calls with a strike price of $7.50, set to expire on Feb. 16, before Feb. 12. Suddenly, on Feb. 12, trading in these calls surged from zero contracts to 7,578. Despite the strike price being more than 10% out of the money at the time of purchase, it turned out to be over 40% below the closing price on Friday. The shares of Nano-X surged over 95% between Feb. 12 and Feb. 16, from $6.64 to $12.95. The call options, purchased for about 17 cents each on Feb. 12, were valued at $5.50 each when they expired on Friday, representing a gain of more than 3,000%.

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SoundHound, another company associated with Nvidia, witnessed a similar surge in demand for call options in the week leading up to the release of the filing.

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SoundHound's shares rose by nearly 70%, reaching $3.82 apiece between Feb. 14 (the day of the filing's release) and Feb. 16, the expiration date for most of the options.

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The spike in options demand for these companies was initially reported by The Financial Times. The filing revealed that Nvidia still owned shares of Nano-X and SoundHound, among other companies.

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Nvidia's 13-F filing history on the SEC's Edgar platform does not date back to 2001, making it unclear when the company made its investments or if there have been recent changes. Nvidia has held small amounts of Nano-X and SoundHound stock for several years.

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Henry Hu, a finance professor at the University of Texas, suggested that some traders were betting on other investors potentially overreacting to immaterial news due to the perceived influence of artificial intelligence (AI).

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Trading volume in the shares of both Nano-X and SoundHound started to increase before Nvidia's filing. Shares of SoundHound that changed hands more than doubled between Feb. 8 and Feb. 9, reaching 37.5 million, and then increased to 38.4 million on Feb. 14. Similarly, Nano-X's daily volume surged from 412,241 shares on Feb. 9 to 3.9 million on Feb. 12, with volume peaking at over 47 million on Feb. 15 as the shares soared nearly 50% in a single session.

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Although Nvidia's positions in these stocks were relatively small, the filing indicated that its stake in Nano-X was worth about $400,000 as of Dec. 31, and its stake in SoundHound was valued at $3.7 million.

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Following the hype from last week, Nano-X shares experienced a more than 20% decline on Tuesday, closing at $10.34, while SoundHound AI gained another 4.5%, finishing at $3.99.

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