DailyPlay – Opening Trade (NVDA) – August 7, 2024

NVDA Bullish Opening Trade Signal

Investment Rationale

The recent volatility in markets have sent growth stocks significantly lower and some of the best performing stocks are now trading at compelling valuations. NVDA fits this category where lower interest rates, combined with the multiple contraction over the past 4 weeks, have pulled it back to levels that warrant a potential investment. Additionally, elevated options premiums can be harnessed for an additional opportunity to potentially acquire the stock at a valuation that is over 35% lower than where it was at the peak.   

Technical Analysis

If we review the chart of NVDA, it recently broke out from a major resistance level at $97 in late May on earnings, and after rallying to its $140 all-time highs, it has pulled back to this support level yesterday. This presents an attractive risk/reward for a long entry. The selloff also has started to show levels of exhaustion where lower lows in price are no longer confirmed by momentum, suggesting a possible trend reversal.

NVDA – Daily

Fundamental Analysis

Looking at the fundamentals, NVDA trades at a 41x forward earnings, which is a 48% premium to its industry, but is expected to grow EPS and Revenues at more than double the pace of its peers. It’s margins also stand out as industry leading in the semiconductor space. This means that the recent multiple contraction provides investors a rare opportunity to buy NVDA at a much more attractive valuation.

Trade Details

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish Credit Spread

Details: Sell to Open 3 NVDA Sept 20th $104/$90 Put Vertical Spreads $5.43 Credit per Contract.

Total Risk: This trade has a max risk of $2,571 (3 Contracts x $857) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $857 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bullish trade on a stock that is expected to bounce higher off support.

1M/6M Trends: Bearish/Neutral

Relative Strength: 10/10

OptionsPlay Score: 88

Stop Loss: @ $10.86 Debit (100% loss to the value of premium)

View NVDA Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

PLEASE NOTE that these prices are based on Tuesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View NVDA Trade