Thursday, November 10, 2016

NVDA Analysis

Update 11/11/2016: NVDA gapped upward after earnings were announced and I exited. It was one of those rare trades that deserves the appellation "awesome".

Shares rose by23.7% over one day, or a +8,645% annual rate. The options position produced a +940.0% yield on debit for a +343,100^ annual rate.

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]


I shall use the DEC series of options, which trades for the last time 36 days hence, on Dec. 18.


Implied volatility stands at 57%, which is 1.5 times the VIX, a measure of volatility of the S&P 500 index. NVDA’s volatility stands in the 65th percentile of its annual range. The price used for analysis was $67.87.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; central tendency earns move

The Trade

NVDA has been in a strong uptrend since November 2012. The most recent peak was Nov. 27. Since then, the price has been tracing out a sideways correction that is presently in Elliott wave C and the lower boundary of the range.

Price Action Breakdown
by Laurentiu Damir

Zacks Investment Research rates NVDA bullish with expectations of an upside earnings surprise.

Brokers in aggregate give NVDA a 13% enthusiasm rating, which isn't super high, given the extreme bullish nature of the chart over the past four years. More than half -- 54% -- of 24 analysts have issued strong buy recommendations.

NVDA's price has risen immediately after all of the last four earnings announcements

Based on the chart analysis, the Zacks rating and the absence of  expectations of a downside earnings surprise, I would expect the next price move to be to the upside or sideways. I shall attempt a bullish vertical spread.

Bull put spread, short the $65 puts and long the $60 puts,
sold for a credit and expiring 
Dec. 19.
Probability of expiring out-of-the-money


The premium is $1.56, which is 0.31% of the width of the position’s wings.

The risk/reward ratio is 2.2:1.

The zone of profit in the proposed trade covers a $2.66 move to the downside and an unlimited rise. The biggest immediate move after each of the past four earnings announcements was $5.81, and the average was $3.79. After eliminating the maximum and minimum post-earnings movements, the central tendency is $3.59.

Decision for My Account

I have entered a position on NVDA as described above. The stock at the time of entry  was priced at $67.66.

-- Tim Bovee, Portland, Oregon, Nov., 10, 2016


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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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.

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