DailyPlay – Opening Trade (NVDA) – August 23, 2023

NVDA Bearish Opening Trade Signal

View NVDA Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 1 Contract Sept 1st $445/$385 Put Vertical Spread @ $17.80 Debit per contract.

Total Risk: This trade has a max risk of $1,780 (1 Contract x $1780) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,780 to select the # shares for your portfolio.

Counter Trend Signal: This stock is bullish and is expected to pull back to lower levels.

1M/6M Trends: Bullish/Bullish

Technical Score: 10/10

OptionsPlay Score: 126

Stop Loss: @ $8.90 Credit (50% loss).

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. 

Investment Rationale

My DailyPlay today will take on a higher amount of risk and is likely to be controversial with some disagreeing with my view on NVDA. NVDA reports after the close today and is expected rake in over $11b in revenue and $2.10 in EPS for the quarter. There is no doubt that NVDA is at the forefront of the AI revolution that is only in its infancy. While I believe in NVDA for the long term, there are concerns with the earnings report this quarter. There are signs from distribution partners regarding the demand of server rollouts decelerating in the previous couple of months. Also, the 10-year yield is 100bps higher compared to last quarter’s announcement, softening valuations. If we look at the chart of NVDA, it recently has failed at its $480 highs, however, I will admit that charts are not meaningful in this analysis as earnings could easily be the catalyst that breaks it higher from those levels. My overall concern is that the stock is priced to perfection after last quarter’s blowout earnings, and that we simply are trading in a different risk regime. Even if NVDA beats on earnings that doesn’t guarantee the stock breaks higher.

My trade is a short-term binary trade for earnings, that I expect to exit before the end of this week and is NOT an expression of a longer-term view on NVDA. Buy to Open Sept 1 $445/$385 Put Vertical @ $17.80. With a hypothetical portfolio of $100,000 I recommend adding another 2% of risk on this trade, which is 1 Contracts for a risk of $1,780. Due to the short-term earnings catalyst nature of this trade, we will not be setting a stop loss on this trade and manage it by tomorrow morning or Friday. 

NVDA – Daily