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
Nvidia Corporation (Ticker: NVDA) has been hotter than hot this year, up 90% so far in 2023.
NVDA was the talk of a recent AI development conference where they showcased their software solution for end to end autonomous vehicle development.
They have secured the number slot in the AI race and that fact has driven the stock to nosebleed levels.
Is the hype enough to drive it to $280 and beyond?
We’ll explore its valuation and technical pattern below …
All the AI hype has put NVDA on the moon from a valuation perspective …
Check out these stats:
PE – 151
Price to Sales – 24.5
MorningStar Fair Value – $200
Now that is one hyped up stock … We have seen a resurgence in tech stocks this year but NVDA is in a world of its own.
NVDA options trade very actively and are deeply liquid. The option positioning has a big influence on the stock price so let’s take a look at the put/call impact profile.
The graph below breaks down the volatility impact of calls (Orange bars) and puts (blue bars).
The larger the notional value of each bar the more influence they have on the stock.
So, notice the call wall strike at $270. The call wall strike holds the largest amount of volatility influence on the stock.
The high last week was $275 and since then it has traded back below the $270 level.
On the other side of the spectrum is $250, which is the dominant strike and major support on the downside.
So that is the range you would ideally like to trade. Now, let me make two technical observations about NVDA based on the chart below.
- Notice the middle volume bars below and how low the volume has been since it made its most recent high.
- Also notice the collapse in realized volatility (blue bar) at the bottom of the chart, since the high in February.
That combination and the fact that it is up against the highest call strike tells me it’s time for consolidation.
If you are a long-term holder you should consider selling calls above the market. You could sell Apr 21 280 calls for nearly $700 a share and roll it forward each month.
Call writes are a great way to increase income without losing your position.
If you are looking for a spot to get involved, wait for a move down towards the $250 level and jump in …
One of my trading rules is to never chase a stock up or down. Let the market come to you and stay in control of your risk.
Till next time …
Live and Trade With Passion My Friend,
Griff