NVIDIA’s shareholder meeting approaches: how to survive in a highly volatile market using options strategies

Last week (June 21), the U.S. stock market experienced a "Triple Witching Day."

Many investors believe that Nvidia's future trend is "uncertain".

The bears argue that Nvidia CEO Jensen Huang's partial liquidation of his holdings is a bad signal, and negative news might be disclosed at the shareholders' meeting this Wednesday (June 26).

Many investors may get overwhelmed with so much going on. What should they do?

In fact, regardless of whether the price goes up or down, as long as there is significant volatility, options traders have an opportunity to profit. This is why experienced traders often turn to options trading.

Today, I will share two options strategies that are suitable for situations where the stock price trend is unclear but high volatility is expected.

The uncertain market is causing the stock to fluctuate wildly.

We can also observe this in the Options > Analysis > Volatility Analysis, where the overall implied volatility (IV) of the options chain is currently at a high level.

Generally, the higher the IV, the "more expensive" the options are. This is because people believe that significant volatility will make out-of-the-money options more likely to "swing" to in-the-money position, thereby increasing the time value of the options.

In fact, "more expensive" here means that higher IV gives options a higher time value premium.

Don't forget that time value decays over time. The higher the initial premium, the faster the value decays. The time value of short-term options will decay rapidly, while long-term options retain more of their time value.

To minimize the impact of other factors, we typically select two options with the same strike price and close to the underlying asset price, but with different expiration dates, and ensure they are either both calls or both puts.

Click Strategy at the bottom of Options screen > Choose Calendar Spread > Choose the appropriate Strike Price and Call/Put > Trade

The Trade interface also displays the current market quotes for the spread, allowing you to select an appropriate price to place your limit order.

Notes:

If you expect the stock price to rise significantly in the future, you should buy a call option.

If you expect the stock price to fall significantly in the future, you should buy a put option.

But what if you expect the stock price to either rise or fall significantly, but you are unsure of the direction?

Actually, there are strategies work this way: Long Straddle and Long Strangle.

If the price of the underlying stock fluctuates within the range between the two breakeven points, a loss will be incurred. The maximum loss occurs when neither call option nor put option can be exercised, and you lose the entire premium paid for both options.

If the price of the underlying stock rises or falls significantly beyond the range of the breakeven points, the profit from exercising the options will exceed the initial premium paid, allowing you to make a profit.

In a Long Straddle, the put and call options purchased have the same strike price, and generally, the strike price is chosen to be as close as possible to the price of the underlying asset when constructing the strategy, ensuring that at least one option will be in-the-money.

In contrast, in a Long Strangle, the put and call options have different strike prices. The strike price of the call option is generally higher than the price of the underlying asset, while the strike price of the put option is lower than the price of the underlying asset.

Therefore, the options selected in a Strangle are generally out-of-the-money, which means constructing a Strangle requires less premium, making it more cost-effective for investors with limited funds.

However, correspondingly, a Strangle requires a greater price movement in the underlying asset to break even, and its loss range is typically larger.

Opening a Long Straddle requires a higher premium, but it demands a relatively smaller stock price movement to achieve positive returns, making it relatively easier to profit.

On the other hand, opening a Long Strangle requires a lower premium, but it needs a larger stock price movement to achieve positive returns.

Although both strategies are designed to profit from significant stock price volatility, you should consider their own circumstances and choose the option strategy that best suits your needs.

Click Strategy at the bottom of screen> Choose Straddle or Strangle > Choose the appropriate Strike Price > Trade

The Trade interface also displays the current market quotes for the spread, allowing you to select an appropriate price to place your limit order.

Notes:

Alright, that wraps up today's sharing.

The strategies discussed above are mainly applicable in situations where NVIDIA's stock price is expected to experience significant volatility.

If you have a clearer expectation of the stock's direction, please pay attention to the direction of trading Calls and Puts.

If you have other ideas about Calendar Spread, Straddle and Strangle, feel free to share and discuss them in the comments section.