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."
$NVIDIA(NVDA.US$'s stock price experienced significant volatility: it first dropped for three consecutive days from $140 to below $120, then surged nearly 7% to $126![]()
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Many investors believe that Nvidia's future trend is "uncertain"![]()
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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).
While the bulls believe that the "AI fever" will continue further, and the positive expectations for $Micron Technology(MU.US$'s financial report, also to be disclosed this Wednesday, will further drive up semiconductor and AI stocks.
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![]()
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Today, I will share two options strategies that are suitable for situations where the stock price trend is unclear but high volatility is expected.
1. Long Calendar Spread
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.
You might be confused here: long-term options have longer expiration dates and higher prices, so why are short-term options considered "more expensive"?
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.
If you believe that the current volatility is high and will decrease in the future, you can sell short-term options with higher IV and buy long-term options with lower IV, creating a Long Calendar Spread position.
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.
For example:
On June 20th, 2024, at market open, you sell a June 28th, 2024 expiration NVDA Call with a $126 strike price for $14.38 per share, and buy a July 26th, 2024 expiration NVDA Call with the same $126 strike price for $17.07 per share. In this process, you spend $(17.07−14.38)×100=$269.
By market close on June 20th, 2024, you notice that the June 28th expiration Call has dropped to $7.30 per share, while the July 26th expiration Call has only fallen to $11.75 per share. If you were to close the position at this point, you could gain $(11.75−7.30)×100=$445.
Throughout this process, your profit would be $445−$269=$176. This profit mainly comes from the difference between net premiums paid and collected.
If you choose not to close the position midway and hold it until the short-term option expires (taking Long Call Calendar Spread as an example):
If the short-term call option does not get exercised, you keep the entire premium from selling the short-term option. This means you buy the long-term call option at a cheaper price when you initially set up the spread. If the underlying stock price rises, you can further profit.
If the short-term call option gets exercised, since you are also the buyer of another option contract with the same strike price, you can choose to exercise the long-term call option. In this case, the exercise of the option has almost no impact on you, and your maximum loss is limited to the difference paid when establishing the spread.
You can open a Long Calendar Spread position in one go on moomoo.
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:
A. Risk Warning: The data mentioned above is for illustrative purposes only and is hypothetical in nature, not reflecting actual market conditions.
B. Since NVIDIA options expire every Friday, if you want to construct a calendar spread with a time difference of about one month, you can select [+4 Expirations] at the bottom of the options chain interface. Otherwise, the default expiration width is +1, which is one week.
C. If you choose to close the position midway, as long as the short-term IV is greater than the long-term IV, you can profit from either a Long Call Calendar Spread or a Long Put Calendar Spread.
If you choose to hold until the short-term option expires, since there will only be one long-term single option remaining in the spread, it is better to ensure that the direction of this single option aligns with your expected stock move.
2. Long Straddle and Long Strangle
But what if you expect the stock price to either rise or fall significantly, but you are unsure of the direction![]()
?
You might think: Wouldn't buying both a put and a call option let me profit whether the stock price soars or plummets?
Actually, there are strategies work this way: Long Straddle and Long Strangle.
The P&L curves of these two strategies are similar:
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.
The difference lies in the choice of strike prices:
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.
For example:
Suppose NVIDIA's current stock price is $118.
If you construct a Long Straddle by purchasing both a Call and a Put option with a strike price of $118, the total cost per share would be $7.05. You will only make a profit when the stock price is below $118 - $7.05 = $110.95 or above $118 + $7.05 = $125.05. The price range within which the combination incurs a loss is $125.05 - $110.95 = $14.10.
If you construct a Long Strangle by purchasing a Call option with a strike price of $123 and a Put option with a strike price of $113, the total cost per share would be $3.20. You will only make a profit when the stock price is below $113 - $3.20 = $109.80 or above $123 + $3.20 = $126.20. The price range within which the combination incurs a loss is $126.20 - $109.80 = $16.40.
In summary:
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.
You can also construct both strategies in one go on moomoo.
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:
A. Risk Warning: The data mentioned above is for illustrative purposes only and is hypothetical in nature, not reflecting actual market conditions.
B. When opening a Strangle position, you can choose the appropriate strike price spread at the bottom of the options chain, with the default spread being $10.
C. Since both strategies are buyer strategies, the decay of time value is detrimental to these strategies.
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.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Jon Bankman : nvda is the top dog
romeo guard : Was your nvidia options successful? Would you be open to sharing your p/l kind of like sharing salary???