When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (NVDA) – BUY
BUY the NVIDIA (NVDA) May 2024 $960-$970 in-the-money vertical Bear Put debit spread at $8.80 or best
Opening Trade
4-23-2024
expiration date: May 17, 2024
Number of Contracts = 12 contracts
With the implied volatility for (NVDA) now at a sky-high 59.3%, one of the highest in the market, I feel I absolutely have to do something about NVIDIA. On meltdown Friday, implied volatility jumped from 42% to 62%, something I haven’t seen since the 2010 flash crash.
We just had a nice $70, or 9.21% rally in NVIDIA shares. I don’t mind going short this stock this far out of the money for 18 days. I think the upside momentum is broken for the short term and that we have entered a wide trading range for the shares.
Please note that I am keeping my existing (NVDA) May $710-$720 vertical bull call debit spread which I can use to partially hedge with this new position. Netting out these two positions, you now have a bet that (NVDA) will stay between $720 and $960, a range of 240 points for 18 days. For you options aficionados out there this is known as a “short strangle with a collar”.
By comparison, the implied volatility for the S&P 500 is a lowly 12.2%. That’s the implied you get when markets grind up almost every day for five months.
After last week’s carnage, the forward price-earnings multiple for (NVDA) has fallen to only 25X, making it the cheapest big tech in the market. Not bad for a company that will grow 40% in the coming year.
I have been arguing vociferously with my fellow traders that while (NVDA) could continue to rise until Monday on short covering, you would lose a third of the profit in this trade if you wait until then because of time decay.
I am therefore buying the May 2024 $960-$970 in-the-money vertical Bear Put debit spread at $8.80 or best.
Don’t pay more than $9.50 or you’ll be chasing on a risk/reward basis.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.
NVIDIA is so far ahead of the competition that no one will catch up for years. What the (NVDA) bears don’t get is that the company has a moat so wide it is impossible to cross. Their enormous lead in software is the result of crucial platform decisions made 20 years ago. The key staff are all looked up with ultra-cheap equity options with strike prices around $1-$2.
Virtually everyone has now raised their upside targets for the stock over $1,000/share. That’s because with a price-earnings multiple of 30X, it is still the biggest Big Tech stock in the market. By comparison, its biggest customer, (META) is at 34X, AI Leader (MSFT) is at 38X, and (AMZN) is at 63X. Efforts by Alphabet to break into the AI chip business are feeble at best.
Every 15% correction in (NVDA) over the last two years has been a strong “BUY”. It owns the AI manufacturing business. It’s looking at $250-$500 BILLION in sales growth per year over the next several years.
Santa Clara-based NVIDIA designs and manufactures high-end, top-performing graphics cards or GPUs. There is probably one in your PC. They are essential in the artificial intelligence, automobile, PC, supercomputing, cybersecurity, and gaming industries.
They are also crucial for national defense. The Biden administration recently banned NVIDIA from exporting high-end chips and their manufacturing equipment to China, which they were using to build sophisticated weapons to use against us. This revenue loss is what has taken the shares down to their current low levels, down 65% in six months.
NVIDIA has long been one of the fastest-growing US companies. Since 2005, its annual net income has soared from $89 million to $9.7 billion.
If the highest growth sectors in the economy are Robotics, AI, and energy storage, (NVDA) is in the sweet spot of every one of these.
And before you ask, NVIDIA is an abbreviation for the Latin word for “envy.”
To learn more about the company please visit their website at https://www.nvidia.com/en-us/
This is a bet that NVIDIA will not trade above $960 by the May 17 option expiration in 18 trading days.
Here are the specific trades you need to execute this position:
Buy 12 May 2024 (NVDA) $970 puts at………...….………$151.00
Sell short 12 May 2024 (NVDA) $960 puts at……………$142.20
Net Cost:………………………….………......................….….....$8.80
Potential Profit: $10.00 - $8.80 = $1.20
(12 X 100 X $1.20) = $1,440 or 13.63% in 18 days.
If you are uncertain about how to execute a bear put options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep-in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.