Here's A Way To Trade Options In AI Giant Nvidia With Results Just Ahead

Ahead of Nvidia's earnings report, the options market is pricing in a potential 7.8% move in either direction. The article outlines a bullish bull put spread strategy for high-risk tolerance traders, suggesting selling the May 30-expiring 123-strike put and buying the 118 put, aiming for a 16.3% return if Nvidia stock remains above 123 by expiration, while acknowledging the risk of a complete loss if the stock falls below 118. The author notes that similar strategies have been profitable in the past, but emphasizes the importance of due diligence and consulting a financial advisor.

Analysis

Nvidia (NVDA) is set for its earnings announcement, with the options market anticipating a significant 7.8% stock price movement in either direction post-release. Notably, NVDA has demonstrated a consistent historical pattern of remaining above the lower boundary of this expected range following its earnings disclosures since February 2021. The article proposes a bull put spread strategy for traders anticipating that Nvidia's stock will stay within, or react positively to, the expected earnings range. Specifically, selling the May 30-expiring 123-strike put and concurrently buying the 118-strike put was recently quoted to yield approximately 70 cents ($70 per contract), offering a potential 16.3% return on a maximum risk of $430, should NVDA close above $123 by expiration. The break-even for this trade is $122.30. However, if NVDA closes below $118, the trade incurs the maximum loss of $430. The article also notes that as premiums fluctuated, an alternative consideration involved adjusting strikes to 122 and 127 to secure an $85 premium. Underscoring Nvidia's fundamental strength, Investor's Business Daily assigns the stock a Composite Rating of 96, an Earnings Per Share Rating of 99, and a Relative Strength Rating of 72. This type of options trade is explicitly characterized as suitable only for traders with a high-risk tolerance and a bullish short-term outlook.

Key Decisions for Investors

• Investors with high-risk tolerance and a bullish conviction on Nvidia's earnings could explore defined-risk options strategies, such as the bull put spreads detailed, to potentially profit from the stock remaining above key levels post-earnings, while fully acknowledging the possibility of losing the entire capital risked.
• Monitor the 7.8% options-implied earnings move for Nvidia and assess the viability of strategies like the bull put spread, considering the break-even point (e.g., $122.30 for the initial example) in relation to current stock price and individual price targets.
• Given Nvidia's strong IBD ratings (Composite 96, EPS 99), a positive earnings surprise could support the proposed bullish strategy; however, the high-risk nature necessitates careful position sizing and an understanding that such trades are short-term and speculative.