Nvidia (NVDA) has been in a solid uptrend for the past few months and if that trend continues, bull put spreads could do well.
NVIDIA is a global leader in visual computing and the original inventor of the GPU, which revolutionized graphics and parallel processing.
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Its focus has expanded from PC graphics to AI-driven solutions powering high-performance computing, gaming, VR, robotics, and autonomous vehicles.
With dominant positions in data centers and strategic partnerships with major cloud providers, NVIDIA continues to shape multi-billion-dollar tech markets.
Today, we’re going to look at a bull put spread trade.
A bull put spread is a bullish trade that also can benefit from a drop in implied volatility.
The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.
NVDA Bull Put Spread
Nvidia’s expected move between now and November 20th is around 8.56% in either direction. On the downside, that would put NVDA stock at around $213.92.
In other words, the options market is expecting NVDA stock to stay above $213.92 between now and November 20.
To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.
Selling the November 20th put with a strike price of $210 and buying the $205 put would create a bull put spread.
This spread was trading on Friday for around $0.71. That means a trader selling this spread would receive $71 in option premium and would have a maximum risk of $429.
That represents a potential 16.55% return on risk between now and November 20th if NVDA stock remains above $210.
If NVDA stock closes below $205on the expiration date the trade loses the full $429.
The breakeven point for the bull put spread is $209.29 which is calculated as $210 less the $0.71 option premium per contract.
Nvidia is due to report Q3 earnings on November 18th, so this trade would have earnings risk if held to expiration.
Company Details
The Barchart Technical Opinion rating is a 100% Buy with a Strongest short term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
NVDA rates as a Strong Buy according to 46 analysts with 3 Moderate Buy ratings and 1 Strong Sell rating.
Conclusion And Risk Management
One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $71, so we could set a stop loss equal to the premium received, or a loss of around $71.
Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $215.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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