How to Trade Nvidia Stock Ahead of Earnings

Nvidia (NASDAQ:NVDA) shares are jumping this morning on the back of a broad market rally. Optimism over tonight’s earnings report might also be playing a part. The semiconductor giant has struggled amid a widespread fallout in growth stocks and the technology sector over the past two months. In preparation for its earnings announcement, let’s take a fresh look at the NVDA stock chart and what the options board is pricing in.

A racecar featuring Drive PX 2 technology from Nvidia (NVDA) parked.

Source: Steve Lagreca /

The weekly time frame shows the chip stocks’ meteoric rise and puts the recent tumble into context.

Despite crumbling 40% from peak to trough, the recent retreat amazingly didn’t reverse the uptrend. Instead, it returned prices to the rising 50-week moving average, where buyers returned to keep the long-term uptrend intact.

The fact that NVDA stock was able to fall 40% without destroying its trend says something about just how overbought the price was at last year’s peak.

Nvidia (NVDA) weekly stock chart with 20 MA resistance.

Source: The thinkorswim® platform from TD Ameritrade

For now, the 20-week moving average near $270 is the level that needs to be breached for new bullish entries.

NVDA Stock Daily View

This threshold gains added significance when looking at the daily chart. It hosts the declining 50-day moving average and the prior pivot high. Thus, taking it out would also turn the daily trend back up.

In fairness, we have a higher pivot high and higher pivot low that have already formed, but it’s far easier to be a bull with prices north of the 50-day.

Nvidia (NVDA) daily stock chart with 50 MA resistance.

Source: The thinkorswim® platform from TD Ameritrade

While it’s always a crapshoot guessing the direction of the earnings gap, I think the odds are against a significant decline. First, NVDA enters the event well off its highs, so we’ve already seen the stock punished.

Second, we’ve seen positive responses out of the last few big players in the industry like Advanced Micro Devices (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM) and Taiwan Semiconductor (NYSE:TSM). That said, if we break $220, then I’d become quite a bit more bearish.

Options Expectations

You don’t have to fly into earnings completely blind. The options market provides an excellent picture of market expectations. Some brokers tell you the expected move outright. Otherwise, you have to look at the cost of the near-term calls and puts. The price traders are willing to pay for them implies how much volatility they expect. For instance, you wouldn’t pay $5 for a one-week at-the-money call option unless you believe the stock could move at least $5 over the next five days.

Currently, the expected move for NVDA stock is $21 or 8%. It seems par for the course given the recent volatility.

So far, prices are up $19 today, and the average daily candle range for the past two weeks is $15. Additionally, last quarter’s report saw prices jump 11% overnight. In sum, the options don’t seem overpriced or underpriced. Thus, if and how you build an options trade into the event comes down to whether you have a directional bias.

Nvidia Earnings Trade

Earlier, I made the case against a significant decline. In other words, I’d lean neutral-to-bullish. Implied volatility is high enough to make selling bull put spreads attractive. If you’re willing to wager that NVDA stock stays above $207.50, enter the following: Sell the March $207.50/$202.50 bull put spread for 55 cents.

The max gain is limited to 55 cents and will be yours if NVDA is above $207.50 at expiration. To increase your odds of success and return on time invested, you could exit when the spread falls to 5 or 10 cents.

The max loss is $4.45, but you can limit the damage by closing the position if prices fall below $207.50.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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