Nvidia played leapfrog this week as the chip giant surpassed both Amazon and Alphabet (Google parent) in market cap. The most loved A.I. play in 2023 (and maybe 2024) is gearing up to report earnings next week on Wednesday. I believe that the Magnificent 7’s crown jewel is significantly overbought and overdue for a pullback. Here is a winning trade if the results are not sensational enough for all of us artificial intelligence addicts. I am long Nvidia (NVDA) , but even if I was not, this is an opportunity to potentially profit from an earnings disappointment as the stock seems to be overextended above $700. It has been a parabolic move up from $500 since the last earnings report when the stock surged more than 25% after another blowout quarter. NVDA 1Y mountain Nvidia, 1-year With expectations as high as they are, I think a slight miss or even “too small of a beat” would be a catalyst for many shareholders to take profits. Earnings growth is expected to be north of 400% year over year. Sales are expected to expand at a rate well above 200%, which are mind-boggling growth percentages for the third largest U.S. company. I have always flocked towards volatility, but Nvidia is rewriting the definition of vol. In 2022, Nvidia was the worst stock in the Nasdaq-100 as it was cut in half percentage wise. However, in 2023 it surged nearly 250%. And to start off 2024, it is up another 50%. This type of performance is typically associated with penny stocks, not a chipmaker with 30,000 global employees. The trade Perspective: This is a very short-term view as I do believe that Nvidia’s trajectory is still up and towards the right. The technicals reveal that the stock has dislocated so far from its moving averages (below), that a $100 drop is not unimaginable. Selling a Nvidia risk reversal: Sold the 2/23 (Friday) expiration February $750 call for $35.00 (collected) Bought the 2/23 (Friday) expiration February $675 put for $18.00 The result in the sale of the slightly OTM $750 call (as NVDA was trading $730 at the time of this trade) and the purchase of the downside $675 put results in a credit spread collecting $17.00 or $1700 for every one lot. This risk reversal pairs well with being long NVDA. However, if you are just utilizing this trade to speculate, you must manage the risk to the upside of the naked short $750 call. If Nvidia has another better-than-expected quarter and trades up to $800, the profit you collected will disappear even quicker. DISCLOSURES: ( Long Nvidia, short the $750/$675 risk reversal) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
