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Don Kaufman, here. |
Gather 'round because I'm about to dive deep into an NVDA earnings play that might just knock your socks off. |
But first, let's set the stage. |
Nvidia (NVDA) is set to report earnings tomorrow, and the options market is pricing in a massive move. |
We're talking a straddle priced at $14 for options expiring in just 3 days. That's some serious implied volatility, folks. |
But here's where it gets interesting - we've got +40 analysts covering this stock. |
That's 40 different opinions, 40 different models, and 40 different ways to interpret whatever numbers NVDA throws our way. |
And you know what happens when you get that many cooks in the kitchen? |
Sometimes, just sometimes, you end up with a whole lot of nothing. |
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That's right, I'm talking about the potential for a "nothing burger" - a scenario where NVDA's earnings come and go, and the stock barely budges. |
Now, I know what you're thinking. "Don, have you lost your mind? This is NVDA we're talking about!" |
But hear me out. |
In the world of trading, it's often the unexpected that presents the greatest opportunity. And that's exactly what we're going to exploit today. |
So let's talk about why this "unlikely" occurrence can pay off big… |
The at-the-money straddle is trading at $14. What does that tell us? It tells us that the options market is expecting a move of about $14 in either direction. |
Let's break that down: |
NVDA is currently trading at $128 Expected move up: $128 + $14 = $142 Expected move down: $128 - $14 = $114
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So what's the best way to play it if you think this is a non-event? |
The Butterfly Strategy. |
Instead of betting on a big move, we're going to play both sides with butterfly spreads. |
Why? |
Because if NVDA does pull a "nothing burger" and stays relatively close to its current price, we could be looking at some serious profit potential. |
Trade Setup: NVDA 115/128/141 Call Butterfly |
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Buy 1 NVDA 115 Call |
Sell 2 NVDA 128 Calls |
Buy 1 NVDA 141 Call |
Net Debit: $3.61 |
Alright traders, let's dive into this butterfly spread and see what we're working with. |
Max Profit Potential: |
The maximum profit on a butterfly spread occurs when the stock price lands exactly on the middle strike at expiration. In this case, that's $128. |
Max Profit = Wing Width - Net Debit |
Max Profit = $13 - $3.61 = $9.39 |
That's a potential return of 260% on your investment. |
Not too shabby! |
Just keep in mind, we don't need to hit max profit to have a winning trade. If NVDA lands anywhere in our profit zone between $118.61 and $137.39, we're making money. |
Break-Even Calculations: |
Lower Break-Even Point: |
Lower Break-Even = Lower Strike + Net Debit |
Lower Break-Even = $115 + $3.61 = $118.61 |
Upper Break-Even Point: |
Upper Break-Even = Upper Strike - Net Debit |
Upper Break-Even = $141 - $3.61 = $137.39 |
Max Loss: |
The maximum loss on this trade is limited to the premium paid, which is $3.61 per spread. |
Stay disciplined, manage your position, and remember - pigs get fat, hogs get slaughtered. Don't get greedy trying to squeeze every last penny out of this spread. |
I believe the best chances to exit this position would be on Thursday morning. NVDA tends to have big moves the days following earnings. |
So this isn't something you set it and forget it. |
As the analysts digest the earnings reports and new recommendations and price targets are set, momentum should pick up in one direction or the other. |
This butterfly spread isn't just a trade… It's a statement. |
It's us saying, "Hey, maybe all this hype is just that - hype." And if you're right? |
Well, you could be laughing all the way to the bank. |
This is not a trade recommendation but an idea for you to think about. I invite you to price out some other butterflies using different strikes. And if you find something juicy, let me know. |
To your success, |
Don Kaufman |
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