DailyPlay – Conditional Opening Trade (NVDA) – December 21, 2022

NVDA Conditional Bearish Opening Trade

View NVDA Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 6 Contracts Jan 6th $170/$175 Call Vertical Spreads @ $1.50 Credit.

Total Risk: This trade has a max risk of $2,100 (6 Contracts x $350).

Counter Trend Signal: This is a Bearish trade on a stock that is experiencing a neutral to bullish trend.

1M/6M Trends: Neutral/Mildly Bullish

Technical Score: 6/10

OptionsPlay Score: 101

Entering the Trade

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

Please note that this is a CONDITIONAL trade. We will only enter the trade when the condition is met, which is If we see NVDA trade back to the $168 to $170 area. Also note that the cost basis, premium paid, as well as the number of contracts when we open this trade will therefore be different from what we post today. This condition is only valid for a week unless advised otherwise.

Investment Rationale

A quiet day for stocks on Tuesday, with gains in all four major US equity indexes (though not the NDX). The SPX posted its first up day in the last five, and it is holding, at least for now, the level I expected it to (i.e., the bearish Propulsion Momentum level at 3814 and its cloud (the latter being extremely narrow right now).

SPX – Daily

We have several conditional trades that have not yet reached their respective entry points. Consider all those active open recommendations through week’s end. (I am not looking to enter new trades the last week of the year.)

Here’s another one to add to the list: Last Tuesday’s spike high in NVIDIA (NVDA) hit its daily Propulsion Exhaustion level at $181.73 and then dove since then. You can see that yesterday closed very close to where the bottom of its “Value Range” is (i.e., the yellow horizontal area from roughly $160 to $172.50). If we do see a market rally now from the reason I showed above in the SPX, this could easily get back up to the high end of that same Value Area.

Therefore, if we see NVDA trade back to the $168 to $170 area, we’ll then look to sell the Jan. 13th $170/$175 call spread for what is then its current bid/offer spread mid-price. (The current ATM/$5 OTM call spread is fetching about 45% of the strike differential, which as a seller, I am always content with receiving.)

This is also a good way of seeing that even when the VIX is relatively low, some individual stocks have high enough volatility that you can still sell their options.

NVDA – Daily