Why Nvidia Corporation (NVDA) Stock Is Going to $100

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While many tech stocks were hit hard in the wake of the U.S. presidential elections, Nvidia Corporation (NASDAQ: NVDA ) has been on fire. Driven by a blowout third-quarter earnings, NVDA stock has soared nearly 38% since Nov. 9.


Source: via Nvidia

What's more, Nvidia stock may end up being one of the hottest stocks of 2016, as the shares are sitting on a year-to-date gain of more than 179%.

And better still, NVDA likely still has more room to run, which is why I'm focusing on a pair of trades around the stock today.

The Fundamental Story Is Strong

Nvidia is one of only seven dividend-paying semiconductor companies - a fact that has attracted serious attention from Louis Navellier , editor of Blue Chip Growth . NVDA stock currently pays out a quarterly dividend of 14 cents per share for a very modest yield of 0.6%. However, there are rumors floating around the Street that Nvidia's success could lead to a dividend hike next year, driving additional bullish interest in NVDA stock.

Speaking of success, Nvidia could have an inside line one of next year's hottest gaming consoles: the Nintendo Switch . Both Nintendo Co., Ltd (ADR) (OTCMKTS: NTDOY ) and Nvidia were pretty much locked out of the last generation of gaming consoles. The Wii U sold only about 13.3 million units worldwide, compared to 22.3 million Microsoft Corporation (NASDAQ: MSFT ) Xbox Ones and 43.4 million Sony Corp(ADR) (NYSE: SNE ) PlayStation 4s. Advanced Micro Devices, Inc. (NASDAQ: AMD ) providing the graphics processors for all three.

But with Nintendo opting for NVDA chips in its next-gen system, the door to the console market has reopened for Nvidia. And it could be in a big way if the Switch lives up to the hype the system has generated so far, which has been on par with the original Nintendo Wii.

NVDA Sentiment and Charts

It's hard to believe that Nvidia stock still faces a considerable degree of pessimism after Nvidia's performance in the past year.

For instance, data from Thomson/First Call reveals that 14 of the 33 analysts following NVDA stock still rate the shares a "hold" or worse. Furthermore, the 12-month consensus price target of $85.02 actually represents a discount to the stock's current perch at $93.39. Should these naysayers join the Nvidia bandwagon, it could mean additional buying strength for the shares.

There is even the potential for a short squeeze play. During the most recent reporting period, the number of NVDA shares sold short rose 2% to 68.5 million, or 13.35% of the company's total float.

Click to Enlarge Turning to Nvidia's options configuration, the lack of call open interest indicates that short sellers are showing very little concern heading into 2017. In fact, option bears have taken full control of the options backdrop early in the new year.

Specifically, NVDA's Jan 2017 put/call open interest ratio has ballooned to a reading of 1.79, as puts nearly double calls among near-term options.

Checking with January implieds, options traders are pricing in a potential move of about 7.3% for NVDA stock in the next two months. This places the upper bound at $99.28, while the lower bound lies at $85.72.

A rally would send Nvidia to a fresh all-time high within striking distance of the century mark, while a decline would have the shares revisit their December lows.

2 Trades for NVDA Stock

Call Spread: Traders looking to bet against the waning bearish tide might want to consider a Jan 2017 $95/$100 bull call spread. At last check, this spread was offered at $1.69, or $169 per pair of contracts. Breakeven lies at $96.69, while a maximum profit of $3.31, or $331 per pair of contracts, is possible if NVDA stock closes at or above $100 when January options expire.

Put Sell: On the other hand, NVDA stock is trading just outside of oversold territory and the shares are still digesting their post-earnings run higher. This doesn't mean that NVDA won't rally heading into January expiration, but, rather, that gains might not be enough to overcome implieds for a solid return. As such, traders looking for a more neutral-to-bullish stance might consider a Jan 2017 $85 put sell.

At last check, this put was bid at $1.60, or $160 per contract. If NVDA closes at or above $85 when January options expire, traders entering this position will retain the premium received for opening the position. However, if NVDA stock trades below $85 ahead of expiration, then traders may be assigned 100 shares at a price of $85 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 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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