Don’t Count Out Nvidia Corporation (NVDA) Stock Just Yet

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Back on Jan. 30, I quipped that Nvidia Corporation (NASDAQ: NVDA ) was going to return to record highs. Of course, NVDA stock did just that, hitting $120.92 just three days prior to Nvidia's fourth-quarter earnings report.

How to Trade Nvidia Corporation (NVDA) Stock Before Earnings

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But the love affair with $120-plus prices was short-lived, and a strong sell-on-the-news bid following earnings sent Nvidia stock on an 11%-plus bender.

Earnings were far from bad. In fact, the company blew past Wall Street's estimates by 16 cents per share on revenue that soared 50% year-over-year. Unfortunately for NVDA stock holders, the pre-earnings rally left speculators hungry for profits, and the "weak" second-quarter guidance of $1.9 billion (analysts are expecting $1.88 billion) just wasn't enough to sustain level of euphoria heading into the report.

If you were lucky enough to get into the Feb $115/$120 call spread I recommended on Jan. 30 , I hope you got out at the top on Feb. 7 and locked in a maximum return on the trade. There really was no reason to hold those NVDA options any longer once the stock topped $120.

Alternately, if you opted for the Feb $100 put sell position, you locked in a nice profit of about $137 per contract when these options expired last Friday.

But with Nvidia still caught in the throes of missed expectations, where does that leave traders now?

Nvidia Sentiment and Technicals

For one thing, sentiment has improved sharply on the NVDA options front since I last checked in on the shares, hinting at elevated expectations. At the time, the the Feb. put/call open interest ratio rested at a lofty 1.31, but the equivalent March put/call OI ratio has fallen to 0.8, with calls now outnumbering puts among short-term options.

Furthermore, Wall Street analysts haven't budged an inch on their bullish Nvidia stance. Thomson/First Call ratings stand exactly where they were heading into earnings, with 21 of the 35 analysts following NVDA stock rating the shares a "buy" or better.

And herein lies the problem.

Nvidia stock is saturated with hype right now. So much so, that smart money is probably selling NVDA to take advantage of the situation. Keep in mind that this doesn't mean the stock's long-term uptrend won't remain intact. But a short-term correction could shake out the weak hands, thus allowing smart money to step back in when the price is right.

So, what's the right price? Well, that all depends on your trading outlook, but I would argue that NVDA stock is a bargain buy on any trade below $100 given the company's prospects for 2017 and beyond.

For short-term options traders, however, the equation is much simpler: Where do implieds suggest the stock will be trading in the next couple of months?

Click to Enlarge For this, we turn to March implieds, and discover that options are pricing in a potential move of about 6.2% for NVDA stock. This places the upper bound at about $114, while the lower bound rests near key support at $100.

2 Trades for NVDA Stock

Call Spread: While smart money may be selling NVDA stock right now, I'm not willing to bet against the shares just yet. Nvidia's fourth-quarter report was nothing short of stellar, meaning bargain hunters are bound to step in sooner rather than later.

Traders looking to take on a bit of risk and bet on a return to form for NVDA stock might consider a March $110/$115 bull call spread. At last check, this spread was offered at $1.66, or $166 per pair of contracts. Breakeven lies at $111.66, while a maximum profit of $3.34, or $334 per pair of contracts, is possible if Nvidia closes at or above $115 when March options expire.

Put Sell: But if an outright call spread is a bit too much risk to take on at the moment, the $100 put sell trade still looks like a winner. Just roll that strike out to the March series, and you're set.

At last check, the March $100 put was bid at $1.39, or $139 per contract. If Nvidia offers up a repeat performance in March and closes above $100 at expiration, then you get to keep the premium received. But, if NVDA stock trades below $100 ahead of expiration, then traders may be assigned 100 shares at a price of $100 per share, for every contract sold.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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The post Don't Count Out Nvidia Corporation (NVDA) Stock Just Yet appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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