The 'Break-even Exit' Options Strategy and Trend Line Trading Guide under Nvidia's Stock Price Fluctuations

Recently, Nvidia's stock price has encountered a sharp decline, causing many investors to fall into a short-term predicament of being caught in a position. How to turn the passive into the active, and use astute trading strategies to achieve a "break-even exit" or even increase profits? This article focuses on two strategies: the Covered Call options trading and the techniques of trend line trading, helping you to cope with market volatility.

Faced with the dilemma that NVIDIA's stock price is lower than the purchase cost, adopting the Covered Call strategy is a wise choice.

The specific operation of applause is as follows:

1. The core of the strategy: sell call options higher than the current price to lock in premium income in advance.

2. Case analysis: Assume that an investor purchased NVIDIA stock (100 shares) for US$140 and the current market price fell to US$118.11. By selling a call option that expires on July 4 and has an exercise price of $140 (note that one option does not correspond to 1 share, but 100 shares), you can immediately obtain a premium of $49, reduce losses on your position and provide instant cash flow.

Here’s how you can make money with this strategy:

The key to making money from this investor's strategy lies in the actual performance of the stock price and the state of the options at expiration:

1. The stock price does not exceed the exercise price: If Nvidia’s stock price remains below $140 on July 4, the option will become worthless, and this investor can keep the stock while retaining the premium received. His final profit is : Received a royalty of US$49 (before fees).

2. Stock price rises: If the stock price rises but does not exceed the exercise price, the option will become worthless, this investor can still keep the stock, and the market value of the stock increases, plus the income from the premium, the overall realization may Profit, his final income is: received royalties of US$49 (before fees).

3. The stock price exceeds the exercise price: If the stock price rises above $140, the option is likely to be exercised, and the investor needs to sell the stock at the exercise price. In this case, the investor will lose the profit from the continued rise in the stock price, but has partially made up for the loss through royalties. In the end, the investor successfully achieved capital preservation at the cost price of US$140/share and also received the rights. gold.

So what are the potential risks:

1. Not suitable for investors who do not hold the underlying asset: If you do not hold the underlying asset, you need to buy it at the current market price and then sell it to the option buyer at a lower exercise price. This difference (market price - strike price) multiplied by the number of option contracts is the loss you may face. If the price rises a lot, this difference can be huge, resulting in huge losses.

2. If Nvidia’s price rises significantly above 140 US dollars per share, it will lose the gains above 140 US dollars per share;

For a high-quality company like Nvidia, you must not sell an excess number of call options, otherwise it will easily be broken down and lead to losses.

When there are many people walking, it becomes a road. Markets are made up of people, and technical analysis predicts collective behavior through historical price patterns. When many traders focus on the same indicator, such as the five-day moving average, its signal can trigger collective action, creating a self-fulfilling prophecy that drives price movements.

The five-day moving average, as a well-known trend indicator in the market, has a significant influence on market dynamics due to its universal recognition.

Trading with trend lines:

Trendline trading method, in short, is to follow the general direction of stock or financial product prices to buy and sell.

The high points and low points on the price chart are connected in a line, and the upward trend line is connected from low points to low points, indicating that the buyer has the upper hand and is suitable for buying when the price pulls back near the trend line;

The downward trend line connects to the high point, indicating that sellers have strong power and can consider selling when the price rebounds to the trend line. If the price breaks above the trend line, it may indicate a trend reversal: when the rising trend line is broken, it is a sell signal;

A downtrend line is broken, which is a buy signal.

Since technical analysis relies more on psychology, in technical analysis, short-term trends generally have the best trading results when they touch the trend line for the first time, and are weaker the second time, and this trend line needs attention. The more people there are, the better the effect will be. We can see that the current support level is the 30-day moving average (dark blue line, third line), and the resistance level is the 20-day moving average (purple line, fourth line, the slowest line). of).