NVDA breakout above 230 and low IV support buying upside via Dec call spread to 270.
Jump to any passage
Nvidia's stock recently broke through the 230 level, which had been a significant resistance level for several months now. It had been trading between approximately 210 and 235, and only recently broke out of that range.
What is interesting is that while we have broken through this level, the implied volatility of the options is extremely cheap. We are below 5% in terms of how cheap options have been over the past year.
Therefore, I believe this is an opportunity to buy some upside profits using "Call Spread". I will choose an expiry date in December. I am looking to buy a "call spread" between the 235 and 270 levels.
Earlier today, you could have paid around $12.40 for this price difference. What you are buying with that is the upside potential towards our target of 270, which is essentially a calculated move of the trading range in which the stock has been over the past few months, expected above this breakout level to the 270 level.
This is our upside target for the end of the year. This "call spread" allows you to take advantage of that upward movement while paying approximately less than 1% of the stock's value in this particular case.
Risking less than 1% of the stock's value gives you a risk-to-reward ratio of about two to one if Nvidia manages to return to the 270 level by the expiration date at the end of December.
And Tony, another thing that caught my attention is Nvidia's implied volatility rating. It's only four out of 100. How important is the low volatility of options in your decision to use "Call Spread" right now?
I would say that one of the main reasons I use "call spread" is that the options are very cheap, giving me the ability to buy this upside while risking the least amount possible relative to the stock price.
So, this is a really important part of what we look for when choosing an options structure to take advantage of our upside potential.
Currently, we see Nvidia's stock at just under $236 per share.
What this channel has said about $NVDA
Schwab Network has 29 calls on this stock; only the adjacent ones are shown.