Back in early March, which was the last time Nvidia Corporation (NASDAQ:NVDA) had a bad stint, I shared a trade on how to trade it on a red day and it was a big win. Here it is, once again a falling knife and testing the same support zone.
Notice that I said zone and not line, meaning that I almost never know the exact bottom. But since the fundamentals that drove Nvidia stock’s price so hard for a year are still in place, it should find footing again soon. I can start long positions, but with caution.
NVDA Stock Trade Idea
The Trade: Sell the NVDA Sep $65 put naked for 75 cents per contract. Because by selling the puts I am committing to owning it at that price, I only do this if I am willing and able to make good on that promise. Otherwise, I would change it to be a credit put spread instead.
Theoretically I have a 90% chance of winning. Worst-case scenario, I would be long Nvidia stock at a 30% discount from current levels.
Click to Enlarge Usually I like to hedge my bet by selling opposing risk but in this case I will delay entry into an NVDA credit call spread. If I sell one here after a sizable drop, I’d be selling it at a discount. Furthermore, given the size of the price buffer and the time left on the clock I am confident that I will be able to manage the short term price gyrations.
I do have to note that NVDA stock is technically vulnerable here. It needs to hold this area or risk a retest of $92. For that, I could protect with temporary and cheap debit spreads to cover me through periods of uncertainty like earnings.
Learn options as easy as 1-2-3 here. 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.
