BY MARK SEBASTIAN
March 9 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Traders,
It’s NVDA’s market…everyone else is just along for the ride….
Typically I just tease what stock we are going to break down…but frankly…there is no way to talk about NVDA without revealing the stock.
NVDA is now a 2 trillion dollar company…bigger than all other companies except AAPL and Microsoft…
NVDA seemingly is going to the moon…it is the stock that everyone loves…
So is it going to 1000…is it going to 1500? Or is there an overhype reversal coming?
Nvidia Corp (Ticker: NVDA)
Looking at NVDA’s numbers according to Wall Street is silly…it’s all about forward PE…
Here is the thing…forward PE is based on Guidance…right now GPU’s are in such incredible demand that that forward PE in the near term makes a ton of sense.
Here is my major issue…
The solution to high prices is high prices
The solution to high margins is high margins…
AMD is working on GPUs
INTC is working on GPUS and has a deal on paper with MSFT.
QCOM is working on GPUS for phones…
What we are watching is the GPU version of farm land…
When corn is 7 dollars a bushel…farmers plant corn…prices drop…
That is what we are seeing in the GPU space…the saving grace is that the time to build a founder to make GPUS is several years.
Here is the other issue…
What happens if bitcoin falls….what happens if AI doesn’t make money???
Intel is getting in…it would make sense that it would be the top in the market.
If it isn’t the top of the market…and as some analysts have said…there is room for competition… then there is massive upside in the competitors.
I know Andrew is going to break into the vol…but here is what makes me nervous about NVDA:
The rally in option prices (the red line) as the stock is hitting new highs tells me traders are getting really nervous…
I think there is a 2-4 day sell off coming in NVDA.
At 2 Trillion…I think the company is fully valued and I would…as stated above be looking to buy competitors.
Nvdia (Ticker: NVDA) didn’t quite make it to $1000.
It came up a bit shy on Friday’s high at $974 before making a huge $83 reversal.
Check out that really ugly large red candle:
That is bearish engulfing and if it closes down here, could be signaling a change in this massive uptrend.
Support below here comes in at $866.
-Licia
NVDA showing sneaky breakout vol
Last year I did something I don’t normally do and bought an NVDA straddle the day of earnings. It was $25 for a 2 week carry. The stock went up $100 to $400. I think that was the last really good NVDA trade for me as I have stayed long with Advanced Micro Devices Inc (Ticker: AMD) instead. Good but not quite as good although right now it is closing on 4x.
For me right now, Semis have become the 6% of my investment portfolio. Last year it was much less and I did sell some AMD post earnings. But still the Semiconductor rally is impressive as the world of investors revalues what the Total Available Market (TAM) is worth.
Notice below IV 30 is rising and NVDA goes parabolic in price. I agree with Mark that short term this is nuts but folks keep buying calls. The stock is moving 4-5% per day so that is running close to 60% realized vol. The options are relatively cheap.
I had a Pro in our chat room buy NVDA calls with a hedge. The long option play is the way to go here. I do think we see $1000 before $700. Also, the volatility up or down will continue.
The Option Pit Team…
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Mark Sebastian
Founder & CEO, Option Pit
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