While the rest of Wall Street has struggled in 2016, Nvidia Corporation (NASDAQ:NVDA) has been on fire.
NVDA stock has soared more than 76% since the beginning of the year, with revenue rising steadily due to the company’s expansion of its graphics processor chips outside of the hard-core gaming market and into mobile. Nvidia is now eyeing the data center market as its next cash cow, and this week’s earnings report could offer up some insight.
Digging into the numbers, the consensus is expecting Nvidia earnings of 37 cents per share, blowing past last year’s profit of just five cents per share. Revenue is seen up 17.3% at $1.35 billion.
Expectations may be even higher, however, with EarningsWhispers.com placing the second-quarter whisper number at 40 cents per share.
The elevated expectations match the overall mood in the brokerage community, as Zacks’ data points out that 11 of the 19 analysts following NVDA stock rate it a “buy” or better, with no “sell” ratings to be found. However, there is one area where analysts are lagging; the 12-month consensus price-target of $53.23 represents significant discount to NVDA stock’s current perch near $59. Price-target upgrades could provide more fuel for the rally following a positive earnings report.
Outside the brokerage bunch, short sellers are hurting. During the most recent reporting period, the number of NVDA shares sold short fell by 12% to 44.4 million shares. Despite the decline, roughly 8.7% of NVDA stock float remains sold short and could provide plenty of fuel for a short-squeeze situation.
Click to Enlarge Turning to NVDA’s options configuration, short sellers don’t appear worried about a continued rally. Typically, short sellers will buy short-term call options as a way to hedge their positions, but NVDA’s weekly August 12 series put/call open interest ratio of 1.01 reveals a preference for puts over calls ahead of the company’s quarterly report. What’s more, this ratio holds steady at 1.01 when we zoom out for the August/September series.
Overall, weekly August 12 series options are pricing in a potential post earnings move of about 8.2% for NVDA stock. This places the upper bound at $63.84, while the lower bound lies at $54.16. A rally would send NVDA stock to a fresh all-time high, while a decline would breach key support near $55, with NVDA potentially retesting $50 as a result.
2 Trades for NVDA Stock
Call Spread: Traders looking to join the bullish contingent on NVDA stock might want to consider a September $60/$65 bull call spread. At last check, this spread was offered at $1.66, or $166 per pair of contracts. Breakeven lies at $61.66, while a maximum profit of $3.34, or $334 per pair of contracts, is possible if NVDA stock closes at or above $65 when September options expire.
Put Sell: On the other hand, NVDA stock is trading in oversold territory right now. While this isn’t too concerning if earnings are solid, the shares could still see a bout of short-term sell-on-the-news profit taking. For a more neutral-to-bullish stance, traders might consider a weekly August 12 series $53.50 put sell
At last check, this put was bid at 52 cents, or $52 per contract. If NVDA closes at or above $53.50 by the close on this Friday, traders entering this position will retain the premium received for opening the position. However, if NVDA stock trades below $53.50 ahead of expiration, then traders may be assigned 100 shares at a price of $53.50 per share, for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
