Closing The Nvidia Trade

Per our last posting, we waited for Nvidia (NASDAQ: NVDA) to move closer to $9/sh, and our wish was granted on 8/11 when Nasdaq tanked. On that date, we bought Nvidia shares at $8.94 and bought an Aug $9 put at $0.37.

Nvidia reported after market closed on 8/12, and as expected, it was a disappointment in earnings and revenue. Nonetheless, this was no surprise to the market, and the stock gapped up the day after the report, and rose to as high as $9.52 before closing at $9.39.

We believe Nvidia (NASDAQ: NVDA) is near its bottom, and normally we will sell the put and then hold the stock while putting a stop loss order for the stock. Nevertheless, we also think the macro environment is very unpredictable, and technology stocks are particularly vulnerable going into September, a traditionally volatile period for stocks. Some fund managers may also sell their losers before month end, of which Nvidia is definitely a prime candidate. With this view, we chose to close the trade and wait for better clarity.

On 8/18, we sold the put at $0.06, and sold half the position at $9.36, and the other half position at $9.38. The trade therefore netted a profit of $0.12/share (~1%) before commissions. The trade panned out pretty much what we expected, and was a validation for the married put strategy we deployed.

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