NVDA Stock Post-Stock Split with Credit Spreads

| Options Trading | 11 seen

In June 2024, NVIDIA (NVDA) underwent a 1:10 stock split, making its shares more accessible to a broader range of investors. As a seasoned trader, I've been leveraging credit spreads to navigate the high volatility of NVDA stock. This strategy helps manage potential risks and capitalize on market opportunities, especially amid the current AI boom, which I suspect might deflate or face stiff competition.

NVIDIA has been a powerhouse in the AI and semiconductor industries, driving significant market interest and price volatility. However, high volatility brings uncertainty, and I’m not ruling out the possibility of a price pullback. Additionally, the AI market could see new competitors emerge, potentially impacting NVIDIA's market dominance. Reflecting on my long-term investment in Intel (INTC), I recall how the introduction of Apple’s M1 chip in 2020 marked a slow decline for INTC. This experience underscores the importance of strategic risk management in volatile markets.

Credit Spreads for Risk Management

Credit spreads have become a crucial part of my trading strategy with NVDA. By using credit spreads, I can limit my risk exposure while still earning a premium. Here’s how it works:

  • Bull Put Spread: This involves selling a put option at a higher strike price and buying another put option at a lower strike price. This strategy is profitable when the stock price stays above the higher strike price, allowing me to collect the net premium.
  • Bear Call Spread: Conversely, selling a call option at a lower strike price and buying another call at a higher strike price can be profitable if the stock price stays below the lower strike price.

These strategies allow me to generate income from the premiums while managing potential losses if the stock moves against my position.

Given the high volatility and potential for a market pullback, credit spreads offer a layer of protection. For instance, if NVDA's stock price drops significantly, the losses from the sold option are offset by the gains from the bought option. This helps in capping the maximum potential loss, providing a safety net in volatile conditions.

My goal is to acquire 100 shares of NVDA, and I’m using options premium to lower my effective purchase price. By selling put options, I can collect premiums, which reduces the overall cost basis of the shares I eventually buy. If the stock price drops and the options are exercised, I end up buying NVDA shares at a lower price, which aligns with my investment strategy.

Credit spreads provide a balanced approach to trading NVDA stock, offering income generation through premiums and a protective mechanism against significant price drops. As I continue on my path to acquiring 100 shares, this strategy ensures that I navigate the high volatility with a calculated risk management approach. While the AI bubble may or may not deflate, and new competitors might emerge, maintaining a disciplined and strategic trading method remains key to long-term success.