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Nvidia (NVDA) is has had a great run in recent months and is still above rising 50 and 200-day moving averages.
The Barchart Technical Opinion rating is an 80% Buy with a weakening short-term outlook on maintaining the current direction.
NVDA rates as a Strong Buy according to 28 analysts with 3 Moderate Buy ratings and 3 Hold ratings.
NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU.
Over the years, the company's focus has evolved from PC graphics to artificial intelligence (AI) based solutions that now support high performance computing (HPC), gaming and virtual reality (VR) platforms.
NVIDIA's GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores, which are necessary to run deep learning algorithms.
The company's GPU platforms are playing a major role in developing multi-billion-dollar end-markets like robotics and self-driving vehicles.
NVIDIA is a dominant name in the Data Center, professional visualization and gaming markets where Intel (INTC) and Advanced Micro Devices (AMD) are playing a catch-up role. The company's partnership with almost all major cloud service providers (CSPs) and server vendors is a key catalyst.
Today, we’re going to look at a bull put spread trade.
A bull put spread is a bullish trade that also can benefit from a drop in implied volatility.
The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.
NVDA BULL PUT SPREAD
Implied volatility is currently sitting at 63.64% which gives NVDA and IV Percentile of 93% and an IV Rank of 86.09%.
Nvidia’s expected move between now and September 15 is around 15.30% in either direction. On the downside, that would put NVDA stock at around $378.
In other words, the options market is expecting NVDA stock to stay above $378 between now and September 15.
To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.
Selling the September 15 put with a strike price of $380 and buying the $375 put would create a bull put spread.
This spread was trading yesterday for around $1.00. That means a trader selling this spread would receive $100 in option premium and would have a maximum risk of $400.
That represents a 25% return on risk between now and September 15 if NVDA stock remains above $380.
If NVDA stock closes below $375 on the expiration date the trade loses the full $400.
The breakeven point for the bull put spread is $379 which is calculated as $380 less the 1.00 option premium per contract.
Nvidia is set to report earnings on August 23rd, so this trade would have earnings risk if held through that date.
Conclusion And Risk Management
One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $100, so we could set a stop loss equal to the premium received, or a loss of around $100.
Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $400.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
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