Tony Zhang with a creative options trade for investors torn over what to think about the AI giant.
Nvidia has been at the forefront of the AI-driven market rally over the past 18 months, fueled by its leading position GPUs, essential for AI computation. However, as the market becomes increasingly sensitive to the enormous capital expenditures required to sustain this growth, investors are seeking more clarity on when these investments will translate into substantial revenue. With
has been consolidating within a narrow range between $124 and $130, suggesting a potential breakout or breakdown post-earnings. This tight range reflects the market's uncertainty and the anticipation of the earnings report. 's valuation has been stretched by its leadership in AI, which has led to high expectations for continued growth. With the market already pricing in perfection, any deviation from these expectations could lead to a significant re-rating of the stock. To hedge against the downside risk going into earnings, I suggest using a "put vertical spread" with the September 20 expiration: Buy the $125 put @ $7.55 Sell the 110 put @ $2.56 Trade Cost: $4.
reports strong earnings, the upside is reduced by the cost of the put spread. However, should the stock decline significantly due to a disappointing outlook, this strategy will help mitigate losses by potentially returning 2 times the amount risked.
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