NVDA Analysis

Update 8/12/2016: NVDA rose sharply, in the direction of the trade, after earnings were published and I took my profits at 75% of the maximum potential.

Shares rose by 7.0% over a day, or a +2,570% annual rate. The options position produced a +300.0% yield on debit fora +109,500% annual rate.

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The graphics processing hardware and software company NVIDIA Corp. (NVDA), headquartered in Santa Clara, California, publishes earnings on Thursday after the closing bell.

[NVDA in Wikipedia]

NVDA

I shall use the SEP series of options, which trades for the last time 36 days hence, on Sept. 16.

Ranges

Implied volatility stands at 54%, which is 4.6 times the VIX, a measure of volatility of the S&P 500 index. NVDA’s volatility stands in the 57th percentile of its annual range. The price used for analysis was $59.08.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	69.15	79.22	62.27
Lower	49.01	38.94	55.90
Gain/loss	±$10.07	±$20.14	±$3.19

Implied volatility 1 and 2 standard deviations; central tendency earns move
The Trade

NVDA has been on a sharp rise since Feb. 11, with no sign on the chart of any weakening of the trend.

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The stock has a bullish assessment from Zacks Investment Research. Brokerages come down with an 11% enthusiasm index, with 53% of 19 analysts issuing strong buy recommendations.

NVDA has risen on the next trading day following all of the last four earnings announcements.

Given the bullish profile, I shall go with a bull put vertical spread.

Bull put spread, short the $55 puts and long the $50 puts,
sold for a credit and expiring Sept. 17.
Probability of expiring out-of-the-money

SEP	Strike	OTM
	55	64.5%

The premium is $1.16, which is 23% of the width of the position’s wings. The stock at the time of entry was priced at $59.01.

The risk/reward ratio is 3.3:1.

The zone of profit extends $4.01 below the order price. The biggest immediate move after each of the past four earnings announcements was $5.41, and the average was $3.54. After eliminating the maximum and minimum post-earnings movements, the central tendency is $3.19.

Decision for My Account

I have entered a position on NVDA as described above. My exit point for a profit is when the options premium reaches $0.58, and for a loss, when it reaches $2.32.

-- Tim Bovee, Portland, Oregon, Aug. 11, 2016

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.


Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



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Based on a work at www.timbovee.com.