Skip to content
Sport News | NVDA Stock Looks Ready To Resume Its Rally After A Punishing Pullback

 | Top stories

NVDA Stock Looks Ready To Resume Its Rally After A Punishing Pullback

| Today Headlines | Local News


Nvidia (NASDAQ:NVDA) the stock is trading at three-month lows.

Source: Hairem / Shutterstock.com

NVDA stock has now fallen 30% from all-time highs near the $345 level in late November after a sharp decline in earnings.

Admittedly, some of the scorching rally that propelled Nvidia to these heights was overdone.

Similarly, the recent sell-off has also been exaggerated. It’s time to be a buyer of an oversold and suddenly underappreciated NVDA on further weakness.

The recent rise in interest rates has finally challenged valuations. InvestorPlace contributor Dana Blakenhorn dove into NVDA and valuation concerns when the stock traded at $278 in late December.

He noted the still very high multiples which were starting to scare off investors but remained bullish in the long run.

Now that NVDA stock is down another 37 points since then to trade near $241, some of the valuation concerns may be starting to ease. Analysts tend to agree.

Currently, NVDA is considered a strong buy with a consensus price target of $359.17 according to TipRanks. This almost implies a big advantage.

The lowest individual price target is $285. Vandita Jadeja recently noted that Citi analyst Atif Malik put NVDA on positive watch after the Consumer Electronics Show.

NVDA Stock Technical Advisory

Sport News | NVDA Stock Looks Ready To Resume Its Rally After A Punishing Pullback

 | Top stories

Nvidia is approaching oversold readings that have matched short-term lows in the past. The nine-day RSI is below 25 and matches the most oversold readings of the previous 12 months.

MACD is deep in the red. The momentum has fallen back to the lowest levels of the past year. Bollinger Percent B is now below zero. NVDA stock is trading at a steep discount to the 20-day moving average.

The last four times all of these indicators aligned in the same way marked significant short-term lows in the stock price. I expect the same thing to happen again. Expect NVDA to return to the 20-day moving average zone at $285 over the next few weeks.

I haven’t always been bullish on NVDA stocks. In my last research paper on September 3, I had a short-term bearish view on an overbought NVDA.

I recommended selling a bearish out-of-the-money call spread which proved prescient and profitable. Along the same lines, a bullish out-of-the-money put credit spread now makes probabilistic sense to fit into a somewhat bullish near-term outlook.

Implied Volatility (IV) is up sharply in NVDA Options. It is now at the 75th percentile, which means that option prices are relatively expensive. This promotes the integration of option writing into the overall trading structure.

How to redeem it now

Buy NVDA on Feb 11 $215 and sell NVDA on Feb 11 $220 for a net credit of $1.20

The maximum gain on the trade is $120 per spread. The potential maximum risk is $380 per spread if NVDA stock closes below $235 at February 11 expiry.

The return on risk is 31.57%. The short strike price of $220 provides an 8.9% downside cushion to NVDA’s closing price of $241.50.

Winnings are due February 16 for NVDA. Expectations are $1.01 in profit on $7.42 billion in revenue.

The spread expires on February 11, which is before the earnings date. This eliminates any earnings risk and helps to mitigate volatility.

As of the date of publication, Tim Biggam had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Chief Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss all things volatility and options. He has also been a guest for recurring appearances on CNBC’s Volatility Playbook.

NVDA Stock Looks Ready To Resume Its Rally After A Punishing Pullback

| Breaking News Updates Google News
InvestorPlace

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.