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I’m bidding on some NVDA April calls, with strikes from $11-12 or so. I don’t know that the near-term for NVDA will pop or that next week’s earnings report will be a catalyst higher either, but the premiums on the NVDA call options are so cheap that I can buy the calls for just about the same price as I can buy the common (the common’s at $12.40 and you can buy the April 11 call options for about $1.60, putting your cost basis at $12.60 instead of $12.40).
There’s a chance NVDA misses estimates and has to cut near-term and our analysis on NVDA is that the next year will good, not the next three months. Read this before you do the trade.
Read this pretty darn good analysis to recall why we’re buying NVDA for the next year or so:
And as always, remember that you can lose 100% of all your capital in any options trade, so even if you do pull the trigger on this trade, don’t do it with more than maybe 1% of your capital at maximum. If you’re trading $500,000 and you put 1% into the April calls, you’ll have 40 calls ($5k/$1.2 per call) which gives you in-the-money control over 4000 shares of the common stock, or about $50,000 worth. And that would mean you’re essentially getting 10% of your portfolio exposed to the upside potential of NVDA over the next 80 days while risking “only” 1% of your overall capital.
Clearly the potential of losing 1% on a trade that could be a 100% loser in just 80 days’ time is very risky in its own right, depending on your own style, risk tolerance, objectives, etc. You could also just buy some NVDA common stock and use our usual scaling in/tranche method. Recall I bought some NVDA common stock the other day and I’m not looking to be aggressive on the long side just now anyway, so I’m just using a tiny bit of capital to bid on these April NVDA calls.
I did all this math off the top of my head as I was writing, so if you catch any mistakes in the my numbers and percentages and what not above, please let me know and I’ll send out a correction.