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.
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.
