Why Nvidia and Palantir Fell

Stock markets were very active on Thursday and Friday. What does the sharp decline in Nvidia shares, especially on Thursday and Friday, indicate? Is it the end of the artificial intelligence revolution or is something else going on in the stock markets? Let me try to explain all this to you. First of all, it is important to point out this. Futures options transactions are used extensively in America. So, let's call it a bet on what the price of a stock will be in the future, it is played very intensively and stock prices are affected very, very hard, especially on the closing days of these futures contracts. These effects are usually temporary, but can create panic in the markets. Let me explain what I mean with an example. As of Wednesday, the size of options betting on Nvidia's price above $140 reached 145734. Someone wrote a contract and sold that contract. Those who purchased the contract purchased the right to buy Nvidia stock for $140 if the price of Nvidia stock rose to $145, for example. We call this an option contract. In this case, Nvidia, who wrote the contract, wants the price to never go above $140. When it stays below, the value of this option will be 0. Thus, the person who wrote the contract will make money. But if the stock price starts to move too much above $140, then the person who wrote the contract will lose serious money.

There were 145734 contracts as of Wednesday. There are 100 shares of stock in each option contract. In this case, the contract for 14573400 shares was written. Strike Price is 140 dollars, so the seller of the contract thought like this. Nvidia won't survive on $140. He sold this contract maybe 6 months ago. Sold maybe a year ago. As you know, Nvidia is a stock that has risen very rapidly recently. That's why he sold this contract very cheaply with peace of mind. The stock's price rose above $140 before the stock market opened on Wednesday. Now, of course, the people who wrote this contract start to panic. Because it means they will incur serious losses. Let me give an example, for example, if the price of the share reached 141 dollars, there were 141 - 1 = 1 dollar times 14573400 shares subject to the option contract. In this case, the loss of the contract writers would be 14573400 dollars. If the price of the share had reached 145 dollars that day, for example, those who wrote the contract would have lost 72867000 dollars. Nvidia's momentum in recent days could perhaps carry the contract up to $150 on Friday. In this case, those who sold the contract would lose 145734000 dollars. Of course, those who sell this contract do not want to lose this money.

Also, the only option contract they wrote is not for 140 dollars, but for 139 - 138 - 137 - 136 - 135. In this case, the damage may become even greater. Let me try to give an example. For example, let's say the target price is $130. So, let's say they sold $130 worth of contacts, which is quite possible. A year ago, no one thought Nvidia would come this far. If the price of the share had increased to 141 dollars, the contract writers would have lost 160307400 dollars. If they had found 150 dollars at closing, closing on Friday, because the closing day of the contacts was Friday, they would have lost 291468000 dollars. If this number of contracts are sold and Nvidia is a stock for which many contracts are sold, because it is very volatile, its share price can show very sharp movements. That's why both option writers and option buyers love Nvidia because there are great profit opportunities here. Now put yourself in the shoes of those selling these options.

The stock rose above $140 before the market opened on Wednesday. There is a strange momentum, it is not a problem for it to reach 150 by Friday. 130 131 132 133 140 120 You sold contacts at Strike Prices at many different prices, that is, below the price they could reach at the closing on Friday. You may even go bankrupt. In this case, you understand that those who wrote this contract mainly want the stock price to go down. If they had written too many put options they would have wanted the opposite. But let me not confuse you there. In this case, they need to reduce the price of the shares. That's why they have a lot of weapons in their hands. For example, one of the weapons could be to borrow stocks from the market and sell them short. As you sell short, the price of the stock may go down. Publishing bad news about the stock may trigger the decline. For example, they did this at Palantir, but they could not do it at Nvidia. Because it's hard to publish bad news on Nvidia anymore.

They did this with Palantir, and a Wall Street analyst downgraded Palantir. The stock fell nearly 7.23% before full contract closes on Friday. All of these are supposedly coincidences, and on the one hand, they can create a general panic in the markets. They may encourage their own clients to sell the Stock. There's so much they can do here. Their goal is to reduce this damage as much as possible. Because there are many contracts and not only Nvidia shares, Palantir also rose so quickly, SMCI also rose so rapidly, all of them. What did they do? They attacked on Thursday and Friday and pulled them down. This kind of thing happens frequently in American stock markets. We are used to these by now, and Friday was the biggest option closing day on the American stock markets. $5.1 trillion worth of options closed. 145734 options written times 2 Cents just the size of these options. Think about it, if you add them on top of each other, you reach a size of 5.1 trillion dollars in different options on many different lists. On such days, if the stock rose very quickly until the option day, as you know, the stock market in general rose very rapidly in June. It's something we see all the time that we get a lot of sales on that Thursday and Friday. For this reason, I do not see the decreases in Nvidia shares and Palantin shares, especially artificial intelligence shares, as you know, they rose very rapidly between Thursday and Friday, as very important.

Because the overall index has not fallen anyway. Because some of the money coming out of these places shifted to other stocks, and since there was not much option pricing spread across all stocks, those other than artificial intelligence players such as Nvidia, Palantir and SMCI were not very affected by this. This momentum may continue a little further on Monday. Because don't forget, stop losses explode and some investors panic and start selling. It can also continue for a while. But if the general thesis about artificial intelligence has not changed, I do not see anything that will change. I think Nvidia's price may consolidate around here for a while and turn upwards again. Because there is no change in the basic information flow about the American stock markets. Inflation continues to fall rapidly. The FED is being stubborn, but the market is aware that the FED's stubbornness will not go anywhere. These main theses do not change. There is no serious change in expectations on the artificial intelligence side. In this case, you can attribute these price movements to this option market. The lesson you need to learn from here is don't panic too much about sudden movements in stock prices. First, investigate the cause to see what it could be. Option closing days are a typical example of this. Friday is one such example.

Another interesting thing happened on Friday. There is an ETF called XLT. This is the ETF of S&P 500 shares and a weight distribution change was made there. The distribution of stocks within the ETF changes. I think they increased Nvidia and decreased Apple a bit. On such days, stock prices become very active again. Because ETFs are investment instruments that are especially used by large pension funds, and the size of these large investment instruments, such as XLT ETF, is over 70 billion dollars. Distribution changes among these can cause stock prices to be very active in the short term. To me these are noise in the long term view. But I know many of you do not know such details, it is useful to share them. I do not yet see a serious downward trend in the stock markets. Maybe this momentum can continue a little longer on Monday and Tuesday. Then it looks like we'll get back on track. In this context, I thought that June would be a good month anyway. June was a very good month in terms of indices as well as stocks. In July, it started to look like it would go well.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.

How do you rate this article?


Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.