Nvidia Stock Strategies Overview

Stock Performance Overview

Nvidia has experienced significant price volatility over the past year. Below is a summary of Nvidia's stock price movements:

January 2024: Nvidia traded between $55 and $60.
March 2024: The stock traded between $85 and $95, with fluctuations due to market conditions.
Mid-April 2024: Nvidia broke through $100, reaching highs of $130 by late May.
June to September 2024: The stock showed volatility, with prices ranging from $100 to $130.
September 2024: Nvidia declined from $126 to $121, signaling weakening sentiment.

Strategy 1: Short Selling Nvidia

Short selling becomes a viable strategy when Nvidia’s stock is overbought or is approaching key resistance levels. Here’s how it works:

Key Resistance Levels: $130 (Mid-August peak), $125 (Early September resistance).
Target Short Entry: Consider shorting the stock when it approaches $130, expecting a decline to $100-$110.
Stop-Loss: Place a stop-loss at $135 to limit risk if the stock breaks above resistance.

Example: You short Nvidia at $130, expecting the stock to drop to $110. If the stock falls to $110, you make $20 per share. If it rises to $135, your stop-loss limits your loss to $5 per share.

Strategy 2: Covered Call Options

If you own Nvidia stock or plan to purchase it, selling a covered call can generate income while holding the stock. Here’s how it works:

Stock Ownership: Buy Nvidia around $121.
Call Option: Sell a call option with a strike price of $130, expiring in November 2024, and collect a $5 premium.
Scenarios:
- If Nvidia rises above $130, you sell the stock at $130 and keep the $5 premium.
- If Nvidia stays below $130, you keep the stock and premium, and can sell another call option.

Example: You buy Nvidia at $121 and sell a covered call with a $130 strike price. If Nvidia rises to $130 by November, you make $9 per share ($130-$121) plus the $5 premium, totaling $14 per share.

Strategy 3: Protective Put

A protective put allows you to hedge against potential losses if you already own Nvidia shares. Here’s how it works:

Stock Ownership: You already own Nvidia shares at around $121.
Put Option: Buy a put option with a strike price slightly below the current trading price (e.g., $110).
Scenario:
- If Nvidia’s price drops, the put option increases in value, allowing you to sell the stock at the $110 strike price, limiting your losses.
- If Nvidia’s price rises, the only cost incurred is the premium paid for the put option.

Example: You own Nvidia stock purchased at $121 and buy a protective put with a $110 strike price. If Nvidia drops to $100, you can sell it at $110 using the put option, limiting your losses to $11 per share ($121 purchase price - $110 strike price). If Nvidia rises above $121, the put expires worthless, and you only lose the premium you paid for the put option.

Strategy 4: Long Straddle

A long straddle allows you to profit from significant price movements in either direction, whether Nvidia goes up or down. Here’s how it works:

Setup: Buy both a call and a put option at the same strike price (usually near the current stock price, e.g., $120).
Scenarios:
- If Nvidia’s price rises sharply, the call option gains value.
- If Nvidia’s price drops sharply, the put option gains value.
- If Nvidia’s price stays flat, both options may expire worthless, resulting in a loss equal to the premiums paid.

Example: You buy a call and a put option on Nvidia with a $120 strike price, each costing $5. If Nvidia’s price rises to $140, the call option gains $20 per share ($140-$120), making up for the $5 premium paid for the put option. If the price falls to $100, the put option gains $20 per share, similarly offsetting the call premium.

Strategy 5: Iron Condor

An iron condor is a non-directional options strategy that profits from low volatility when Nvidia’s price is expected to stay within a specific range. Here’s how it works:

Sell Call and Put: Sell a call option at a higher strike price and a put option at a lower strike price (e.g., sell a $130 call and a $110 put) to generate income.
Buy Call and Put: Buy a further out-of-the-money call and put option to limit potential losses (e.g., buy a $135 call and a $105 put).
Scenarios:
- If Nvidia stays between $110 and $130, both the short options expire worthless, and you keep the premium.
- If Nvidia moves beyond $135 or below $105, the long options help limit your losses.

Example: You sell a $130 call and a $110 put, while buying a $135 call and a $105 put. If Nvidia’s price stays between $110 and $130, both the call and put options expire worthless, and you keep the premiums collected from the short options. If Nvidia moves sharply, your losses are limited by the long call and put options.

Strategy 6: Calendar Spread

A calendar spread profits from Nvidia’s volatility by focusing on time decay. This strategy involves selling a short-term option and buying a long-term option at the same strike price. Here’s how it works:

Sell Short-Term Option: Sell a call option with a shorter expiration date (e.g., November 2024) at a strike price of $130.
Buy Long-Term Option: Buy a call option with the same strike price but a longer expiration date (e.g., January 2025).
Scenarios:
- If Nvidia’s price stays around $130, the short-term option decays quickly in value, while the long-term option retains value.
- If Nvidia’s price moves significantly, the long-term option appreciates, and you can close the position profitably.

Example: You sell a short-term $130 call option and buy a long-term $130 call option. If Nvidia’s price stays near $130, the short-term option loses value faster, allowing you to close the position profitably. If Nvidia moves sharply, the long-term option gains value, providing you with another opportunity to close the position profitably.