The Tech Stock That’s Dominating Headlines This Week
Yesterday several War Room members asked for my thoughts on Nvidia’s earnings that release tomorrow.
So today I’m going to give you a few trading strategies to consider for this major market event.
In case you didn’t know, Nvidia is a software company responsible for graphics processing chips for high-performance computing.
It recently became the most valuable company in the world after its market capitalization grew to $3.34 trillion, overtaking Microsoft’s $3.32 trillion.
The reason Nvidia took that spot is because its processors are the second to none for powering artificial intelligence platforms. These include generative AI, which back the algorithms for tech like ChatGPT.
And since the artificial intelligence boom in late 2022, Nvidia has been on an absolute tear.
The company is up a whopping 900% over the last two years. Including a 181% boost in 2024 so far. That’s exceptional growth for a company in a very short time.
For NVDA’s upcoming earnings, current options are pricing a 10% move up or down.
Projections are also showing a bullish slant, likely because Nvidia has consistently beat estimates and guided higher.
When it comes to trading Nvidia, here’s a strategy that you could consider.
The Calendar Spread Strategy
I like calendar spreads for Nvidia here because it allows me to take advantage of options premium volatility as the volatility going into earnings is higher than usual.
A spread allows you to wager on the stock’s price across different points of time.
A calendar spread allows you to buy a later date call and sell an earlier date call into earnings to take advantage of the increased premium.
The strike prices would be the same and above the current price if you are bullish and below the current price if you are bearish.
The goal is for the share price to close below the strike price of the call so that the earlier expiring call expires worthless leaving you with a free and clear shot with your later expiring call but at a much lower cost.
Bull and Bear Spreads
In addition to calendar spreads, you can also consider bull call spreads and bear call spreads.
Bullish call spreads are similar to covered calls where you’re betting the price of the stock will rise. But in the case of a bull call spread, you’re using two options rather than a stock and an option.
Bear call spreads are the exact same as bull call spreads, except in this case you’re using puts instead of calls.
These are all strategies you can consider when trading a company like Nvidia ahead of earnings.
Action Plan: Nvidia reports tomorrow and due to the size of the company – its earnings will dominate the headlines over the coming days. Right now I believe a calendar spread trade is a move to consider for the chipmaker.
In The War Room, I go over how to use calendar spreads in more depth.
