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The Post That Just Saved Us Money On Nvidia

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by Portfolio Armor
Wednesday, Nov 20, 2024 - 23:37

Sometimes The Best Move Is To Do Nothing

As I type this after hours on Wednesday, shares of Nvidia (NVDA) are down about 1% in the post-market after the company posted a modest earnings beat, but guidance a bit lower than the Street expected. 

During market hours, I considered placing an earnings trade on Nvidia for myself and my subscribers, but after re-reading this post ("When To Buy Nvidia") I decided not to. In that post, I mentioned a couple of previous times my subscribers and I traded Nvidia earnings; 

Trading Nvidia Options

One difference between stocks and options is that options expire, so there's no place for diamond hands: if you don't sell or exercise before expiration, your options will expire worthless. Most of the options trades we do in my trading Substack are spreads, where the maximum possible gain and loss are pre-defined, What I do in those cases is open a GTC order to exit at about 95% of the spread, and lower that price, if necessary, as the expiration date approaches. Here are a couple of examples of me doing this trading Nvidia options. 

  1. Call spread on Nvidia (NVDA 6.15%↑). Entered at a net debit of $2.10 on 2/20/2024; exited at a net credit of $4.74 on 2/22/2024. Profit: 126%.

  2. Call spread on Nvidia (NVDA 0.00%↑). Entered at a net debit of $3 on 5/21/2024; exited at a net credit of $9.45 on 5/23/2024. Profit: 215%.

Those were both earnings trades. The spread between the strike prices on the first one was $5, and on the second one, $10. I placed the second trade after I started my current practice of aiming for ~200% gains on options spreads.

And then I detailed when I'd place an earnings trade on the stock again: 

When I'd Place A Bullish Options Trade On Nvidia Again

I'd like to see a slightly better valuation on Nvidia with the stock still showing strong technicals. Let's quantify that. Currently, according to Chartmill data, here's what Nvidia looks like on three specific metrics (all of these are on range from 0 to 10, with 10 being the best):

  • Technical Rating: 9
  • Set-up Rating: 2
  • Valuation Rating: 5

The technical and valuation ratings are self-explanatory; the set-up rating measures the short-term consolidation of share prices. Here's what I'd like to see before I place my next bullish options trade on Nvidia: 

  • Technical Rating: 6 or greater. 
  • Set-up Rating: 6 or greater.
  • Valuation Rating: 6 or greater. 

I set up an alert to notify me when Nvidia meets all three of those criteria. At that point, I'll investigate it further, and if it looks promising, I'll place another bullish bet on it.

Checking Chartmill intraday Wednesday, Nvidia's valuation rating had slid to 4 out of 10. That was enough for me to avoid placing a bullish bet on the stock. 

I considered placing a bearish bet, but I figured the stock's earnings would be close to Wall Street's estimates, and so likely not bad enough to move the stock sufficiently for a profitable exit on Thursday. from a bearish pre-earnings trade. 

Thursday Evening Nvidia Update

Nvidia was basically flat on Thursday, so neither bullish nor bearish directional options trades would have made money on it. 

Good News For Supermicro On Nvidia's Call 

Regular readers may recall we (my subscribers and I) placed a couple of bullish bets on Super Micro Computer (SMCI) on Monday. 

I had mentioned two catalysts for Supermicro this week: 

  1. The company hiring another auditor and submitting a plan to avoid delisting. 
  2. Nvidia's conference call. 

Now that second catalyst has hit, as Nvidia CEO Jensen Huang mentioned Supermicro as a current partner during Wednesday's earnings call. SMCI shares spiked about 5% after hours on that news. 

Thursday Evening Supermicro Update

Up 15% on the day. It's not getting delisted, and it's still an Nvidia partner. 

Time To Hedge MicroStrategy 

As we near the end of the year, owning MicroStrategy (MSTR) shares has turned out to be a great way to play Bitcoin this year, far better than owning Bitcoin itself, or Bitcoin miners. Shares of MSTR were up 650% year-to-date, as of Wednesday's close. 

At this point, MicroStrategy longs may want to consider adding some downside protection. The optimal collar in the TikTok video below will hedge them against a greater-than-18% decline between now and late February. That should cover any potential bearish news coming in the wake of President Trump's inauguration (such as difficulties in confirming some of his crypto-friendly appointees). 

 

@dpinsen Getting Paid To Hedge MicroStrategy #BTC ♬ Akhnaten, Prelude (Refrain, Verse 1, Verse 2) - Philip Glass

 

That clip used the Portfolio Armor iPhone app to scan for an optimal collar on MSTR; you can download that app by clicking on the QR code below, or aiming your iPhone camera at it. 

Thursday Evening MicroStrategy Update

Looks like it was a good time to hedge. 

If you would like a heads up when we place our next trade, feel free to subscribe to our trading Substack/occasional email list below. 

 

If you'd like to stay in touch

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).

 

 

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