Today, markets are soaring to new highs on the heels of President Trump’s’ speech last night. Nvidia Corporation (NASDAQ:NVDA) is also participating, but the move is relatively muted, especially considering that NVDA stock is a fast runner.
Nvidia stock is trying to recover from a recent beat down, so I won’t read much into it yet. Unlike Intel Corporation (NASDAQ:INTC) stock, which is down 1.1% on this green day. This could indicate a clear relative underperformance from INTC to its peers.
I’ve gone long NVDA on several occasions. Most recently, on how to buy the NVDA dip on Feb. 23. The trades are performing well. But today, I need a separate trade for a smaller account that I don’t trade too often.
How to Trade Nvidia Stock Here
The Bet: Sell the NVDA $65 Jan 2018 put. This is a bullish trade. I need the price to stay above my sold strike to win. For my risk, I collect $2.50 per contract. When selling naked puts, I have to be willing and able to own NVDA stock at my strike sold. Anything below $62.50 per share in this case would accrue losses.
To temper the trade, so it would suit milder risk palettes, I can make it a credit put spread instead.
The Alternate Bet: Sell the NVDA Jan 2018 $65/$60 credit put spread for 70 cents per contract to open. This, too, is a bullish trade, but here the risk is limited to the width of the spread less what I collect. The 35% buffer from current price gives this trade a 90% theoretical chance of success. In that case, this trade yields 15% on money risked.
Given that the buffer is so large, I will not hedge my bet yet. The longer-dated options usually allow me the flexibility to manage the risk appropriately based on the price action. Defense strategies could include credit call spreads or cheap shorter-term debit put spreads.
On further dips, and if the fundamentals and macro don’t change, I could be inclined to add to my position. I can do this by selling more contracts or I could add debit call spreads for more juice. This is a digital world and we are getting more dependent on technology, thereby increasing the demand for Nvidia products.
I am not required to hold my trades open through expiration. I can close any of them at any time for partial gains or losses.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
