Nvidia Corporation (NASDAQ:NVDA) shares are soaring today on the heels of last night’s jaw-dropping earnings release. At the open, NVDA stock soared 23% … and believe it or not, there’s probably still more room for shares to run through the end of 2016.
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For its fiscal third quarter, the hyper-growth chipmaker delivered revenue of $2 billion along with earnings of 83 cents per share. Both metrics smashed expectations, delivering year-over-year 54% revenue growth and 89% earnings growth.
With NVDA stock firing on all cylinders on the fundamental side, it’s no wonder its stock price had already garnered 105% in year-to-date gains before adding today’s surge.
Let this be a lesson: Price trends driven by the potent cocktail of high earnings and sales growth have staying power. Consider Nvidia stock this year’s poster child for said truth.
On the price action front, there’s nothing not to like here. With this morning’s moonshot, NVDA stock has reclaimed all-time highs. All major moving averages are stacked beneath in bullish fashion.
Traders afraid to chase are being left in the dust this morning. The overnight gap of 17% simply was not enough. Growth lovers have sallied forth all morning long, all too happy to pay up for Nvidia shares.
Sure, NVDA will eventually retreat once cooler heads prevail and profit-taking takes root, but worry not! I have a trade idea that will limit your exposure should such a downturn materialize.
How to Trade NVDA Stock
If you’re looking to get in on the action take a look at January call spreads. We can fashion a position to double our money if NVDA runs into year-end. Buy the Jan 85 call while selling the Jan 90 call for a net debit of $1.75. This bull call spread has $1.75 of risk that will be forfeit if Nvidia shares sit below $85 at expiration.
The reward is limited to the spread width minus the net debit, or $3.25, and will be captured if NVDA climbs above $90 by January. By risking $1.75 to capture $3.25, we’re looking at a potential 186% return.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
