If you are trading Nvidia Corporation (NASDAQ:NVDA) for its ties to cryptocurrency mining, you are missing the forest for the trees. I’m not saying the fates of cryptocurrencies like Bitcoin, Litecoin, Ripple, etc. won’t have an impact on Nvidia’s bottom line. But they are far from the reasons you should be bullish on NVDA stock.
Like Advanced Micro Devices, Inc. (NASDAQ:AMD), Nvidia has been pigeonholed by speculative investors recently. Lest we forget, Nvidia also has its hands in the lucrative and fast growing data center market, as well as autonomous driving and a slew of artificial intelligence partnerships. And we haven’t even touched on its mainstay GPU sales to the PC gaming market.
Still, NVDA stock has bounced around at the whims of speculative cryptocurrency investors looking to bank on rising GPU sales used to mine cryptos. The recent spate of negative financial crypto headlines, as well as the market correction, have taken their toll on Nvidia stock.
Click to EnlargeDuring the market rout, NVDA stock fell more than 22%. The shares have since come roaring back after rebounding from support near $200. Nvidia stock has also reclaimed former support at its 20- and 50-day moving averages.
And, despite the sharp rebound, NVDA remains far from overbought levels, meaning there is plenty of upside still available.
Tonight, Nvidia stock could benefit from yet another bullish driver. Wall Street expects fourth-quarter earnings of $1.16-per-share — a nearly 18% year-over-year increase. Revenue expectations are for a 23.3% rise to $2.68 billion. The whisper number rests at $1.22-per-share.
On the sentiment front, there is a growing number of Nvidia stock bulls. According to Thomson/First Call, 21 of the 38 analysts following NVDA stock rate it a “buy” or better. Meanwhile, the 12-month consensus price-target of $220.08 is a discount to NVDA’s current perch. As you can see, there is ample room for both upgrades and price-target increases following tonight’s quarterly report.
Turning to Nvidia’s stock options configuration, there is a fair amount of trepidation heading into tonight’s report. The February put/call open interest ratio rests at 0.79, with calls maintaining a slim edge over puts among front-month options. Currently, peak call OI rests at the in-the-money $210 strike, while peak put OI also resides at $210.
Overall, weekly Feb. 9 implieds are pricing in a potential post earnings move of about 8.4% for NVDA stock. This places the upper bound at nearly $250, while the lower bound lies at $210.
Two Trades for Nvidia Stock
Call Spread: Traders looking to bet on a continued rebound for NVDA stock, fueled by tonight’s quarterly report, might want to consider a Feb $245/$250 bull call spread. At last check, this spread was offered at $1.48, or $148-per-pair-of-contracts. Breakeven lies at $246.48, while a maximum profit of $3.52, or $352-per-pair-of-contracts — a potential return of 137% — is possible if Nvidia stock closes at or above $250 when February options expire.
Put Sell: On the other hand, those traders worried about a neutral or poor reaction to tonight’s report might consider a Feb $200 put sell. At last check, this put was bid at $1.62, or $162-per-contract.
If NVDA closes at or above $200 on expiration, traders entering this position will retain the premium received for opening the position. However, if Nvidia stock trades below $200 ahead of expiration, then traders may be assigned 100 shares at a price of $200-per-share, for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.