Regarding NVDA, I was in a unique situation. I’ve posted about this here and on the Options board. But I was in an existing strangle on NVDA. A strangle is where you buy put and call options at different strike prices betting that the stock price will move significantly either up or down. In a classic strangle, you don’t care if it goes up or goes down because you make money either way. How you lose is if the stock price stays in a narrow range neither up or down. If the price moves a lot then you can make enough money on one side (calls or the puts) to pay for both sides plus a nice profit. That’s how it’s supposed to work.
Now, my situation was more unique than that. I started out with just puts. I did this because everybody and their brother was saying how wonderful NVDA was and how they expect them to blow away estimates. Often, when everyone is buying and singing their praises that’s when the house comes crashing down. That’s what happened to all those tech stocks in 2000 when the dot-com bubble burst. But then at the last minute I got nervous and added some calls which turned my trade into a strangle of sorts. But it was still oriented towards the puts. In my “strangle”, if NVDA went up by 15% then I would get a small profit, but if they went down by 15% I would triple my money. Last quarter when NVDA blew away estimates they went up by 24%. I was expecting a big move.
After-hours yesterday, they topped out at 520 (+10.4%), but today their high was like 500 (+6.1%). Neither was high enough for me to make a profit on the upside. Then they traded down all day and closed unchanged (slightly negative after-hours). Unchanged is the absolute worst case in a strangle. If I had to close everything today I would lose money on everything.
But one thing I decided was that if the absolute worst case happens and the stock price is unchanged, then given all the hype that’s been going on for weeks on this stock, this will be viewed by everyone as a negative and the stock price would get weak and trend downward. So I made sure to give me plenty of time on the put side. My calls expire soon, but my puts don’t expire until December. So I have a little time to let NVDA drift down to where I can make a profit. Even if it experiences volatility both up and down (which may be likely), such volatility also is a bearish sign. I’ll just play this as it goes.
The strangle aside, I also traded a put on NVDA today. It was trading down pretty hard, so I bought a put. Sure enough it kept going down, bounced, went back down and bounced again a little lower leaving a positive RSI divergence, so I got out with a 25% gain and this from a 1.0% - 1.5% down move in the stock (not sure about the exact stock prices when I entered and exited). It turns out that had I held to the end of the day I would have done much better, but I didn’t want to risk having a bigger bounce up. This trade was not something I planned for ahead of time. It just felt negative to me at the time so I entered and exited according to plan.
So I have this intraday trade on NVDA, plus I have my puts which expire in December. All my trade calculations showing possible profit on the puts are based on options prices earlier this week which are all wrong because post earnings, the prices have all come down. I’ll likely take a look at that tomorrow.