NVIDIA: Seizing Contrarian Opportunities in the Options Market's Bearish Overreach

Amid escalating regulatory scrutiny and geopolitical headwinds, NVIDIA's stock has become a battleground for bulls and bears alike. Yet, a closer look at the options market reveals a fascinating paradox: institutional investors are piling into bullish bets at record levels, even as the company's AI-driven dominance and long-term tailwinds suggest near-term pessimism is overdone. For contrarian traders, this presents a rare chance to profit from overpositioned bears through strategic use of put options and call spreads.

The Bearish Overreach: Options Market Signals and Analyst Optimism

NVIDIA's options market is currently awash in bullish momentum. The May 30, 2025 $120 call options—a key strike price—saw open interest surge by 13,373 contracts in late May, driven by institutional “sweep orders” that typically signal urgency. Implied volatility for these contracts spiked to 101.64%, reflecting sky-high expectations for post-earnings upside. Meanwhile, the put-call ratio for volume (0.57) and open interest (0.97) both tilt bullish, suggesting traders are overwhelmingly pricing in further gains.

Yet, this bullish frenzy masks a critical vulnerability: bears are likely overexposed. Short sellers and call sellers may be stretched thin, especially as NVIDIA faces headwinds like U.S. export restrictions on AI chips to China—a potential $5.5 billion annual hit. Analysts, however, remain sanguine: upgrades from CFRA, Market Edge, and LSEG to “Outperform” highlight misplaced confidence in near-term resilience.

Why the Bulls Might Be Wrong: Structural Tailwinds vs. Near-Term Noise

NVIDIA's moat remains intact. Its AI GPUs power 90% of the world's AI infrastructure, and its H100 and H800 chips are irreplaceable for large-scale training models. Even in China, the company is pivoting to affordable AI GPUs to circumvent restrictions, signaling agility in navigating regulatory storms.

The real risk for bears lies in underestimating NVIDIA's ability to monetize its generative AI ecosystem. Revenue growth of 66% YoY in Q1 FY2026 (projected at $43.28B) and a 39% jump in EPS underscore this. While geopolitical risks are real, they're already priced into the market—creating a setup for mean reversion after the May 28 earnings report.

The Contrarian Play: Theta Decay and Mean Reversion Strategies

For traders, the key is to exploit theta decay in long-dated puts and capitalize on post-earnings volatility with bullish call spreads.

1. Long-Dated Puts: Riding Theta Decay
Buying out-of-the-money puts (e.g., the $100 put expiring March 2026) offers a high reward-to-risk ratio. With implied volatility at 48.57% for longer-dated contracts, these puts are priced to reflect bearish expectations. However, theta decay—time decay favoring long options as expiration approaches—can amplify profits if the stock stabilizes. Even a modest dip post-earnings could trigger a sharp rise in put premiums.

2. Bullish Call Spreads: Profiting from Mean Reversion
Constructing a bull call spread (e.g., buying May $120 calls and selling $125 calls) captures the anticipated volatility around earnings. If the stock rebounds after a post-earnings dip, the spread profits from the difference in strike prices, with limited risk. This strategy thrives in the “buy the dip” environment that often follows quarterly reports.

Why Act Now?

The confluence of high open interest, overpositioned bears, and an undervalued put skew creates a timing sweet spot. With earnings due May 28, the coming days will test whether bulls' optimism is justified. If the report misses estimates—a real but manageable risk—the resulting volatility could present a buying opportunity. Conversely, a beat would validate the bullish thesis but at a higher cost.

In either scenario, the structural AI tailwinds favor NVIDIA's long-term trajectory. Bears' overreach in the options market is a contrarian gift: a chance to profit from their eventual unwinding.

Final Call to Action:
With theta decay on your side and mean reversion likely post-earnings, now is the time to deploy capital in long-dated puts or bullish spreads. NVIDIA's dominance in AI isn't going anywhere—seize the moment before the market catches up.