After a bad March performance, Nvidia Corporation (NASDAQ:NVDA) stock has recovered about half of the damage. While NVDA stock still is off by about 3% for the year-to-date, it’s currently on a roughly 9% bounce off its April bottom.
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The comeback didn’t come as a surprised to me — I previously shared a way to catch Nvidia stock and generate income out of thin air and without worry.
But if you didn’t buy the dip, is it too late to go long Nvidia shares now? Not at all! The concept still stands, as I like to sell risk against price action rather than the future value of the underlying stock. Of course, we should only do this in stocks that have real value regardless.
That’s fine for NVDA, which is fundamentally strong. It’s one of the few suppliers to the brains of our current tech ecosystem. And since technology is taking over more aspects of our everyday lives, I’d say that Nvidia and its competitors all have room to prosper. There is no particular reason to believe that NVDA is lagging its competition now, or that it will going forward.
Technically, NVDA stock rallied fast before topping off twice in January and February. It has dipped since then, but I highlighted a band of support that, if lost, could bring about a retest of $95.
Should that happen again, I think bulls would once more defend that level with zeal. After all, $95 was the breakout point in December 2015 and has since served as support five times. Unless we get new information that negatively affects the narrative this earnings season, buyers likely will step in once more to defend Nvidia at $95.
This gives me confidence to go long Nvidia stock today. But instead of risking $102 per share with no buffer, I will once again resort to the options markets. I will sell risk below proven support but with an even bigger margin for error.
How to Trade NVDA Stock Here
The bet: Sell the Dec $75 naked put and collect $1.85 per contract. This trade has an 80% theoretical chance of success by having Nvidia stay above my sold put through mid-December. Otherwise, I would be put the stock and suffer losses below $73.15.
For those who don’t like to sell naked puts, I can modify this trade to have a more finite risk profile while still retaining a healthy reward.
The alternate bet: Sell the Dec $75/$70 credit put spread. This bullish trade has an equal chance of success and it could yield 14% on money risked.
For both of these trades on NVDA stock, I won’t sell opposing risk for balance. I am fairly confident that with a 25% price buffer, I will be able to manage my risk against short-term price drops.
Learn options as easy as 1-2-3 in a personal 1on1 webinar 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.