NVDA is modestly bullish; supported by large share buybacks and analyst upgrades, but nearing overbought levels.

Nvidia's stock hit an all-time high today after Morgan Stanley reclassified it as a top choice in the semiconductor sector. The analyst sees potential for an upward revision to Nvidia's revenue forecast for fiscal year 2028, noting that management's forecast of annual growth of around 70% is very conservative, as actual demand is approaching 100%.

Morgan Stanley sets a price target of $300 for the stock with an "overweight" rating. This comes in a week in which CEO Jensen Huang spent time in Washington with other AI leaders to sign a new voluntary agreement to manage risks in the industry.

Nvidia's shares have risen by more than 20% since the start of the year, outperforming gains in the broader market.

You know, Nvidia was the company that even Jensen Huang commented had become cheap from a valuation perspective. The stock has hovered around $200 and slightly above for what seemed like a long time.

In fact, despite the impressive profits, it even spent some time below the $200 level during some sell-off waves.

Why? Well, because it's a stock that many people own. Therefore, he is affected by those movements. However, this meeting they held with Morgan Stanley resulted in Morgan Stanley reaffirming its ranking as their first choice in semiconductors.

I read something from the memo. It was interesting. Land, energy, and structure – that's what they're working on for the future. I liked how they made it easy and concise to understand.

But, throughout this time that the stock has been fluctuating between $195 and $215 back and forth, you can take a look at the three-year chart. It's been a really long time. The company continued to make profits.

Therefore, the rating continued to decline more and more.

What might have really changed the tone of the conversation about Nvidia? Share buybacks, right? Apple has done this brilliantly throughout its history. I think you might see Nvidia start doing the same thing, because a $235 billion share buyback program is very large.

That's the firepower they possess to support the stock.

So, the stock is likely to continue to move in line with the overall market, right? As is the case when it is traded so widely, but overall there seems to be a change in tone here in the time of Tesla, Diane.

Yes, I think if you take a look at it, or, you know, Kevin mentioned the buyback. That was the big motivator. We were in that 190-210 range for a long time until about a month ago when we broke through, setting record levels today, but I think it's about the whole package, the moat they're building while they've been focusing only on the GPU side of their business.

Now, they have graphics processing units (GPUs) and packages, right? They have special programs with CUDA. They have network devices with Spectrum X Ethernet and InfiniBand. Then they have their own CPUs with Vera Rubin that are expanding into the AMD and Intel space, right?

So, they get that complete package. This creates that large trench. I think this is a very positive thing.

If you look at their growth rates over the last two quarters, the data center alone rose by 117% to reach approximately 89 billion in the second quarter. And if you look at the predictions they made.

Now, they've extended their projections to 2028. I think the growth rate should have been around 45 to 50%, which is what Wall Street predicted. They provided a revenue growth rate of 70% for fiscal year 2028.

So, they are expanding their guidance for the future, and that's what investors really liked about that particular report.

And you know, this is a widely traded stock, right? It is the largest component of both the Nasdaq 100 and the S&P 500. So, yes, it helps the markets in general when you see the largest component within the major indices start setting new record highs and breaking upwards.

One last piece of information: if you're looking for a market capitalization of $6 trillion, then $249.39 is the price at which the stock should trade to reach $6 trillion, according to my calculations.

So, now, there is a lot of good news and a flow of positive news. However, one thing to note is that it is in the mid-sixties in terms of relative strength. It is approaching a state of overbought demand.

Therefore, my trading in paper money is still bullish, but it is modestly bullish. It's a calendar spread for a two-week call, buying on October 23 and selling on October 9 at 245.

So, you know, a little bit higher, under $10 more than where we are now. In fact, I put it in at around 250 and it's trading a little bit above that now, Tom. So, it's not a fierce bullish bet on Nvidia, but it's something that will probably be profitable if it stays within a certain range or slightly above from here, Tom.

Because it runs for two weeks, you have an opportunity to reduce the net cost by rolling over or extending the term, Tom. Yes, let's take a look at this. This two-week bullish calendar spread gives you some upside exposure.

Go to the weekly October 23 options that expire in 21 days. Buying a call option at an execution price of 245, outside the price range of about nine dollars up. Sell the same 245 call option in weekly October 9 options that expire in just one week.

We pay approximately, we have a cost of 230 here. This is the price at which it was trading earlier. The stock had already fallen below 235. Now we are back above 236 at this point.

But the cost you pay will be your risk. So, if you pay 230 or 250, that's your risk, $230 per spread.

But you can see here from Kevin's deal, if the price reaches around 245, that would be new record highs, wouldn't it? But you probably have a range of around 237 on the lower side, and maybe 253 or 254 on the upper side to be profitable.

Kevin made a good point. As far as deal management is concerned, the idea here is for the stock to rise at or near 245, but you have a wide range for the stock to trade in order to be profitable in this deal.

As you approach the expiry date within the next seven days, you have the ability or possibility to rotate that short option. This creates credits, doesn't it? And what does that balance do?

Well, it reduces your initial risk, doesn't it? It increases potential profitability and reduces your exposure to risk, doesn't it? When you receive credits for those modifications.

But the point here is that you expect a gradual increase. But even if the stock rises a dollar or two above its current price, you are likely to make a profit depending on the renewal values and expansion of this calendar, as its price will increase as it gets closer to 245.

As your short option nears its expiry in the next seven days, you can repurchase it, roll it over to another weekly option, or close the deal based on how much it expands. But it gives you limited exposure to the upswing.

What you don't want is for the stock to drop from here, or for the stock to rise sharply to perhaps exceed 255. That's when you start to lose profitability on the upside here.

Okay, here's the optimistic buy options calendar that Kevin gave us for two weeks. Kevin, I looked at something a little different, it needs to move towards the downside but not too much.

I looked at the "butterfly" strategy of bearish sell options here, and I didn't make it unbalanced or broken-winged. It is a "butterfly" of even-spaced put options, extending to the October 16 monthly option.

That's just two weeks until the expiry date. I will buy one of the put options at an execution price of 235, which is roughly outside the current price range towards the downside.

Buy a put option at 235, sell two options at an execution price of 225, then buy a put option at 215. So it is basically a “butterfly” strategy of equally spaced put options with a $10 spread towards the downside.

You'll pay roughly what it used to trade for two dollars, maybe five cents cheaper now, but the amount paid will also be your risk, won't it? So $200 per spread is your risk.

Now, where do you want the arrow to point? Okay, you want it to drop below 233, which is the breakeven point, and then stay above 217. You can see the range you've set between those breakeven points; that's the profitability range, right?

Where does it peak? Exactly at or near the execution price at which I sold two options at the 225 level.

So, Kevin, we're always talking about butterfly strategies, as they're cheaper than other strategies, probably due to some of the trending here. But it's cheap for a reason sometimes, because you need to be within that range, and you don't really start to expand until the last few days before this bearish put options butterfly strategy expires.

Yes, the butterfly strategy is a strategy with defined risks. A long position, in this case, buying a "vertical boot", and a short position, another "vertical boot". The average execution price is what they have in common.

In this case, it is the 225 execution price for the "bot". This is your target at the due date. As you know, we talk about "butterflies" a lot. You receive the profit late. So, if it's going to move towards $225, it's best if that happens close to the expiry date of October 16, so that it gets close to that peak on the risk chart.

But they do generate exponential returns if you're right, Tom, you know, but it's very difficult to quantify them precisely. Sometimes we use the analogy that it is like being hit by a bullet with another bullet.

You need to reach this execution price on the due date, close to 3:00. But if you do that, and if things go right, you can make a good exponential profit, Tom.

Yes, and that's always the key, Kevin, when we talk about these "butterflies"—that the risk and reward setup is very good. You risk 200 to potentially earn 800 if the price is at or near the execution price of 225, but this must be close to the expiry date.

This is when you really start to see expansion, but look for some downside exposure here if you think Nvidia will pull back with Kevin's "Butterfly Bot" in "Call Calendar," Diane.