Nvidia’s (NVDA) great run continues as the stock broke $700 yesterday.

The Barchart Technical Opinion rating is a 100% Buy and ranks in the Top 1% of all short term signal directions.

Long term indicators fully support a continuation of the trend.

The market is in highly overbought territory. Beware of a trend reversal.

NVDA rates as a Strong Buy according to 31 analysts with 3 Moderate Buy ratings and 3 Hold ratings.

NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. 

Over the years, the company's focus has evolved from PC graphics to artificial intelligence (AI) based solutions that now support high performance computing (HPC), gaming and virtual reality (VR) platforms.

NVIDIA's GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores, which are necessary to run deep learning algorithms. 

The company's GPU platforms are playing a major role in developing multi-billion-dollar end-markets like robotics and self-driving vehicles.

NVIDIA is a dominant name in the Data Center, professional visualization and gaming markets where Intel (INTC) and Advanced Micro Devices (AMD) are playing a catch-up role. The company's partnership with almost all major cloud service providers (CSPs) and server vendors is a key catalyst.

Today, we’re going to look at a bull put spread trade. 

A bull put spread is a bullish trade that also can benefit from a drop in implied volatility.

The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

NVDA BULL PUT SPREAD

Implied volatility is currently sitting at 54.21% which gives NVDA and IV Percentile of 82% and an IV Rank of 61.29%.

Nvidia’s expected move between now and February 16 is around 5.19% in either direction. On the downside, that would put NVDA stock at around $665.

In other words, the options market is expecting NVDA stock to stay above $665 between now and February 16.

To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.

Selling the February 16 put with a strike price of $665 and buying the $660 put would create a bull put spread.

This spread was trading yesterday for around $0.85. That means a trader selling this spread would receive $85 in option premium and would have a maximum risk of $415.

That represents a 20.48% return on risk between now and February 16 if NVDA stock remains above $665.

If NVDA stock closes below $660 on the expiration date the trade loses the full $415.

The breakeven point for the bull put spread is $664.15 which is calculated as $660 less the 0.85 option premium per contract.

Nvidia is set to report earnings on February 21st, so this trade should have no earnings risk if held through that date.

Conclusion And Risk Management

One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $85, so we could set a stop loss equal to the premium received, or a loss of around $85.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $675.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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