Yo Pit Crazies,
In the OP Pro chat room, one of my students made a call on Nvidia Corp (Ticker: NVDA) midday Wednesday.
Steve A. is a longtime student who even helped Mark Sebastian edit his book, so his vol chops are pretty good.
This does not happen very often, so let’s see what NVDA did.
NVDA Went Moonshot to $380 After Earnings
A standard vol play I teach Pro students is the pre-earnings play. Not so much loading up on juice, but looking for cheap Implied Vol (IV) prior to earnings and riding through, since the trade provides a normal strangle buy with the additional kicker of earnings move uncertainty. Then see how the cookie crumbles.
Two interesting things going on prior to the rip yesterday:
NVDA 30 Day IV was in the middle of the range in what is arguably, as I’ve been saying this week, one of 3 major vol events along with the debt ceiling and FOMC minute release. So a bit underpriced after a $50 rally in a month.
NVDA realized vol was crushed on the relentless rally. Mark and I like to buy cheap IV strangles into strong rallies for precisely this reason. I don’t know why the stock is going up, I just want it to keep going and low realized vol rallies can stretch for a long time. The strangle stops the call as a hedge.
NVDA 30 Day IV in red, 30 day realized in blue
Steve was right – the IV looked cheap. In retrospect, on a 25% underlying earnings move, anything is cheap. But he thought, as did I, way before the earnings that a $20 at money straddle was underpriced. The funny thing is the straddle was $20 at the beginning of the week!.
So I took the money I made closing some Weekly Profits Cycles trades and recycled it into 1 NVDA May26 302.5/305 strangle for $19.95. Should be worth close to $80 today.
I figured I was risking $1000 – my max per trade – and there was almost 0 chance it moves less than $15 in the current environment as it had a $20 range this week.
I used to do the same thing in Apple Inc (Ticker: AAPL) many moons ago when IV was underpriced.
The edge in any trade is something for nothing, which we teach in OP Mentoring. Then see where the cookie crumbles. This was a lucky crumble.
The Rundown
Easy Button
If you like this strangle idea, EZB is 11 wins for 17 trades and is easily paying for the service cost. I set up each trade to potentially pay for the annual subscription.
Palantir Technologies Inc (Ticker: PLTR) Jun16/Jun02 10 call calendar, 11 calls closed for a 42% gain
OP Mentoring
VIX, SPDR S&P 500 (Ticker: SPY) Jun09/Jun21 20 puts, 412/400 put vertical spread closed for a 15% gain
To Your Trading Success,
AG