Exiting Nvidia Trade Before Earnings Report Pays Off!

Options Put Trade Returns 34% Potential Profit!
A New Options Call Trade Already Up 59% Potential Profit!

by Ian Harvey
August 21, 2019

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NVIDIA Corporation (NASDAQ:NVDA)

Exiting Nvidia options put trade before the earnings report last Thursday, August 15, 2019, paid off with a 34% potential return. Applying a new options call trade, on the day, has also been profitable to the tune of 59% potential profit, within a 48 hour period. As this trade has a long-term expiry date there is likely to be more profit to be made. Or is it wise to exit now?

Shares of the graphics-chip leader jumped 7% to close at $170.78 per share on Monday. For a comparison, the S&P 500 closed the day up 1.2%.

NVIDIA stock's year-to-date 2019 return is 28% due to this jump, this outpaces the broader market’s 16.2% return. This move upwards comes closely after Friday's 7.3% positive movement following the company's release of better-than-expected fiscal second-quarter 2020 results; which dovetailed perfectly with us exiting Nvidia options trade on Thursday; and placing a call trade at the same time. 

YOU NEED TO BE IN TO PROFIT!

Why the jump in price?

Friday - The Earnings Report – In the second quarter of fiscal 2020, NVIDIA’s revenue rose 16% sequentially to $2.58 billion, beating the analyst estimate of $2.5 billion. The sequential growth was driven by strong demand for laptop GPUs and game console processors. The quarter also included revenue from autonomous vehicle development agreements and NVIDIA Super RTX GPUs. This sequential revenue growth shows that things have started to normalize for NVIDIA after a 31% sequential decline and no growth in the last two quarters. Looking at this report, exiting Nvidia options put trade before earnings was extremely beneficial.

NVIDIA CEO Jensen Huang stated that the business has normalized. But this is a new normal with no extraordinary gains, as in 2017 and 2018. The stock has a long way to go to reach its September 2018 levels. NVIDIA is doing all the right things….

  • The company is expanding its market beyond gaming to adjacent markets like automotive, data center, and professional visualization.
  • It’s expanding its data center offerings by acquiring Mellanox.
  • It’s tapping new fast-growing markets of artificial intelligence and autonomous vehicles through partnerships.

Monday – after exiting Nvidia options put trade and replacing it with a call options trade on Thursday, Nvidia has gained around 14.8% in just the last two days due to…..

  • shares still benefiting from a tailwind from Thursday's second-quarter earnings beat,
  • NVIDIA and Microsoft (NASDAQ: MSFT) announcing a partnership where NVIDIA's RTX ray-tracing technology is coming to the PC version of the software giant's Minecraft, and
  • news that the Trump administration extended a reprieve on a ban that restricts U.S. companies from doing business with Chinese telecom giant Huawei.

Analysts’ seem positive…..

Of the 39 analysts tracking NVIDIA, 25 analysts have rated the stock as a “buy.” Twelve analysts call NVDA a “hold,” and only two call it a “sell.”

While analysts expect NVIDIA sales to fall 7.77% in fiscal 2020, they expect its sales to rise19.7% YoY in fiscal 2021. Analysts also expect NVIDIA’s earnings to rise 32.4% YoY in fiscal 2021 compared to their anticipated fall of 19% YoY in fiscal 2020.

Institutional investors splurge…..

On August 19, institutional investors including hedge funds owned around 72.8% of NVIDIA stock. Investor Nachman Norwood & Parrott grew its holdings in NVDA by 1% in the second quarter. Institutional investor Autus Asset Management also boosted its stake in NVIDIA by 31.8% in the quarter.

Future of Nvidia…..

Things are looking brighter this year for Nvidia despite the share price being cut in half from October through the end of last year. Over the one-year period, it's now down about 30%, though it remains a massive winner over longer periods. This was one of our arguments for exiting Nvidia options put trades before the earnings report.

For the third quarter of fiscal 2020, NVIDIA expects revenue to fall 8.8% year-over-year but rise 12% sequentially to $2.9 billion. The growth will be driven by…..

  • strong demand from gaming as more and more games adopt ray tracing technology,
  • the launch of the Nintendo Switch Lite will drive demand for Tegra processors,
  • autonomous vehicle development agreements and the Super RTX GPUs,
  • gains from its Mellanox acquisition, which will help it expand its reach in the data center market,
  • holiday season sales if Pres. Trump’s exemption of video game consoles, laptops, and computer monitors from tariffs until December 15 continues, as well,
  • Intel has addressed its CPU (central processing unit) supply shortage, which had limited NVIDIA’s sales of laptop GPUs over the last three quarters.

The company is also focusing on fast-growing markets such as automotive, AI, and professional visualization for growth.

What can you do?

The bullish theme surrounding Nvidia based on the long-term is still intact, thus our reasoning for exiting Nvidia before earnings and adding a positive skew to our trading. Therefore, you may wish to consider the following options trade…..

Option trade to consider: Buy the NVDA JUN 19 2020 170.000 CALL at approximately $22.00.


PATIENCE PAYS OFF!

 

If you are interested in receiving more trades similar to this and being part of the profitable action enjoyed by members just CLICK HERE.

AS ALWAYS THE DECISION IS YOURS!


Further Reading.....

When To Exit A Trade Based On Earnings?.....

It is also worth considering, when options trading earnings reports – “Do we exit on already existing profits or leave the companies to report their earnings and hope for bigger profit?” 

As most traders realize, there is a 50/50 chance that the company stock price could go either way after reporting earnings – even if the report is good, the stock price could reverse – and if you hold a call option, means depletion of an already good profit if it exists. A similar situation can be found if you hold a put option, and a report is not that sound (and you expect a profit from this) but the stock price can, at times move upwards due to traders bias or other external conditions......READ MORE.....

An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.

It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!


Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


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