Nvidia's Record-Breaking Rally Sends Options Dealers Scrambling to Hedge

$NVIDIA(NVDA)$   jumped 3.8% Thursday morning, extending its record-breaking rally and sending options dealers scrambling to hedge amid what traders call a gamma squeeze.

The AI chip behemoth's latest rally took gains over the past year to 74%. In Asia, its server assembly partner Hon Hai Precision Industry Co. delivered another blowout financial results, adding to evidence of relentless spending on AI hardware. 

Nvidia also announced a partnership with Ineffable Intelligence to co-design the infrastructure for large-scale reinforcement learning. That collaboration will be among the first to explore the upcoming NVIDIA Vera Rubin platform, with the goal of understanding the next generation of hardware and software that will be required as the AI world shifts beyond human data toward models that learn through simulation and experience.  

A massive concentration of contracts, known as a Call Wall, was sitting at the $235 strike price for the May 15 expiration. When a stock price nears such a wall, market makers—the large financial institutions that sell these contracts to retail investors—must buy shares of the actual stock to remain neutral and manage their risk. As Nvidia shares climbed above that strike price, these institutions were likely forced to buy more shares to hedge their positions, creating a self-reinforcing loop of buying pressure that pushed the price even higher.

That pressure is called gamma. Gamma measures how fast an option's sensitivity to the stock price changes. Think of it like a car's gas pedal: when a dealer sells a call option, they are on the hook to deliver shares if the stock rises. As Nvidia surged above the $230 strike, dealers who had sold those calls had to buy more and more shares to stay neutral. That extra buying pushes the stock higher, which triggers more buying. The cycle feeds on itself — a gamma squeeze.

The move came as net money inflows hit $921 million, with block orders — large trades often made by institutions — showing consistent green bars since May 6. The buying wasn't random. It landed right on top of heavy option positions that expire May 15, forcing market makers to buy stock as prices rose.

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