NVDA Stock has a 10-1 Split—What Does it Mean for Me?

The markets expect a lot of volatility in Nvidia, given its historic rise in market cap over the past year

• Nvidia completed a 10-1 stock split on June 7.

• The previous stock price was reduced by one-tenth, and stock and options holders woke up to 10x their holdings at adjusted prices on June 10.

• Nvidia has exceeded earnings expectations four quarters in a row, and the stock price has surged over 200% in 2024 alone.

• Stock splits result in more accessibility and flexibility for all traders and investors

How do stock splits work?

Stock splits typically take place when a company's stock price rises to a level where it becomes harder for investors with smaller accounts to participate in the stock or options market of the product. Stock splits are fairly common, and they enable the company to reduce the price of the stock by a certain multiple, and offer more shares at an equivalent multiple. When a stock split takes place, it creates a more liquid market, and more market participants can now trade and invest in the newly lowered stock price.

Why did NVDA stock split?

Nvidia (NVDA) had a 10-1 stock split on June after closing at $1208.80, and on June 10 the stock price opened 10 times smaller than the previous close at $120.37. Stock and options positions realized a 10x increase in quantity at an adjusted cost basis, ultimately resulting in a non-event outside of the transaction itself. Nvidia likely split after the massive surge in the stock price the company realized over the past few years. Stock splits are usually seen as a positive from a growth perspective, as more market participants can now trade at the lower price than the previous high price of the stock.

Nvidia is widely viewed as a staple in AI and tech, and with exchange-traded funds (ETFs) like XLK rebalancing for more exposure in NVDA, all signs point to a currently bullish sentiment for Nvidia.

What do stock splits mean for traders?

When a split lowers a stock’s prices, options prices decrease in similar fashion. Reduced options prices mean more-narrow bid-ask spreads and heightened activity, which means more-liquid markets overall.

For options traders, this means getting in and out of strategies in a quicker and more clear way from a mid-price standpoint. This also means traders have more flexibility from a strategy standpoint. Small and mid-sized accounts can now participate in strategies that were reserved for large accounts when Nvidia was a $1,300 stock. Now at a $130 price point, traders can consider a much more diverse suite of strategies.

On top of this, defined risk strategies are now relatively "wider" than the previous price point. For example, a 10-point wide iron condor in NVDA stock when it was $1,300 is relatively narrow. Now, a 10-point wide iron condor in NVDA stock at a price of $130 is pretty wide. This means a higher probability of profit all else equal, and a faster moving trade with a heightened exposure to the greeks.

What's next for NVDA?

Nvidia has significant call skew in the July options cycle, which implies that the velocity of risk is currently priced on the upside. This doesn't mean the stock is going to the upside for sure, it just tells us that the implied velocity risk is to the upside.

We can always look to the options market to see what implied volatility is for the next few months. This tells us what the market is expecting in terms of stock price movement. Through the mid-August options cycle, we're looking at an implied stock price move of +-$19.78, which is well over 10% of the current stock price.

Looking forward to the end of the year, we can see an expected stock price move of +-$38.26, which is well over 20% of the current stock price.

This tells us that the market is still expecting a lot of realized volatility in Nvidia, and that should surprise no one given the historic rise in market cap the company has seen over the past year.

Click here to watch Mike Butler explain it all.

Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb  

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