BY ANDREW GIOVINAZZI 

August 20, 2023 

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

If there’s one name synonymous with AI, it’s Nvidia Corp (Ticker: NVDA).

During the Dotcom era, it was Intel Inc (Ticker: INTC) inside, but for AI it’s NVDA. Traders have bid up NVDA to 1000x P/E – essentially, folks think NVDA revenues will double every year for the foreseeable future.

And they might!

My job is to see how the vol market is pricing this madness.

So let’s check it out.

Implied Volatility is Out of Sight for a $400 Stock

As stocks get more expensive, IV usually goes down at some point because $1 moves in bigger stocks generate a lower volatility as they climb in price.

Right now, a $550 strike call 2 weeks out is $5. That means after the post-earnings vol crush, NVDA has to jump $100 for that call purchase to be worth it. That’s a big expectation on the tails.

Take a look at the skew below. The OTM puts are a lower vol than the OTM calls – that means traders are looking for a massive move higher.

If I were to trade this, I would buy an upside call fly for small dollars. Traders are looking for $500 or better as the last $100 rally is fresh in folks minds. Against the upside fly, I like the 1 x 2 put spread for delivery around $250 with enough credit to pay for the fly.

Crazy town prices expect a crazy town move.

Questions about that? Leave a comment below!

To Your Trading Success,

AG