It never seems to fail. For the past year and a half, each and every Nvidia (NASDAQ:NVDA) stock selloff is soon followed by a full recovery. Will it be different this time? Probably not, and you can immediately capitalize on the share-price dip with one or more Nvidia options trades.
Today, we’ll focus on selling (also known as writing or shorting) put options, informally called puts. With this strategy, you’ll paid up front simply for agreeing to buy 100 Nvidia shares at a lower price if the stock goes down.
Don’t just jump into any put-selling trades, though. Foremost, since you might end up buying 100 Nvidia shares at a lower price, you’ll want to know why Nvidia stock recently went down. Then, you can sell Nvidia put-option contracts with much more confidence.
It Really Wasn’t Nvidia’s Fault
Why did NVDA stock decline in late July? It wasn’t because of anything going wrong with Nvidia in particular. Rather, the selloff is a normal and healthy pullback after an amazing ride higher. After all, as the old saying goes, trees don’t grow straight to the heavens.
Still, the market always needs an excuse to pull back on technology-stock buying. In this case, generalized anxiety about the second-quarter earnings cycle prompted the selloff in tech stocks, and Nvidia stock suffered from collateral damage.
For example, during the July 30 decline of Nvidia stock, Mizuho analyst Jordan Klein observed “ongoing rotation out of the big winners today in the market, which is tech.” None of this negates Nvidia’s status as a dominator in the artificial intelligence (AI) graphics processing unit (GPU) market.
Thus, Nvidia should easily weather the storm and put-option sellers can seize the opportunity right now. Indeed, NVDA stock ended July on a high note, rebounding strongly on July 31 as tech-sector sentiment started to turn positive.
Get Big Premium Payments From Nvidia Put Options
By selling put options, you can get paid up front to potentially purchase Nvidia shares at a lower price than the current price. For example, you can sell an Nvidia put option contract expiring Sept. 20 with a $100 strike price for around $6.50.
This means you would receive an immediate cash payment of $650, since each put option contract represents 100 stock shares. If Nvidia stock goes below $100 by Sept. 20, you might have to purchase 100 shares for a total of $10,000. Buying Nvidia shares at $100 apiece – and keeping that $650 cash payout – isn’t such a bad outcome, is it?
If you try different expiration dates and strike prices, you’ll receive different up-front cash payments. Here are some possibilities with Nvidia stock options:
- Sell Nvidia $100 strike put option expiring Oct. 18 for $7.85 per share, receive $785 cash payment
- Sell Nvidia $95 strike put option expiring Nov. 15 for $6.95 per share, receive $695 cash payment
- Sell Nvidia $97.50 strike put option expiring Dec. 20 for $9.35 per share, receive $935 cash payment
Option prices can change at any given moment. So, check with your broker for current Nvidia put option prices. As the name “options” implies, you’ll find that there are many exciting and potentially profitable options to choose from.
Nvidia Options: Get Paid to Buy Shares
Even though Nvidia stock ended July on a high note, there’s still some tech-sector anxiety on Wall Street. However, Nvidia is a well-capitalized and highly profitable company with a great future.
Consequently, you can sell Nvidia put options to possibly buy shares at a lower price point if the market’s fear persists. If worse comes to worst, you’ll get paid up front and end up purchasing Nvidia shares at a discount. That sounds like a win-win scenario, so feel free to conduct your due diligence on Nvidia options today.
On the date of publication, David Moadel 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 InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
