Nvidia (NVDA) is a Leaderboard stock that gave an early buy signal with a strong break above its 50-day moving average.
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Traders willing to bet that Nvidia stock will remain above 830 in the coming weeks could look at a bull put spread trade.
As a reminder, a bull put spread is a strategy with defined risk, so you always know in advance what the worst-case scenario is.
This type of trading will benefit if Nvidia stock is trading sideways or higher, and sometimes even if it is trading slightly lower.
With Nvidia stock trading around 877, if we use the May 10 expiration date, we can sell an 830 put and buy an 825 put for around $1.30.
Selling this spread would yield a premium of about $130. The maximum risk is $370.
Nvidia stock option trades can return 35%
If the spread expires worthless, that would be a 35% return in 10 days, provided Nvidia stock is above 830 at expiration.
The maximum loss would occur if Nvidia stock closes below 825 on May 10. That would cause the premium seller to lose $370 on the transaction.
The breakeven point for the transaction is 828.70. That is calculated as 830 minus the option premium of $1.30 per contract.
I would set a stop loss if the loss is equal to the premium amount received. In this case it would be $130.
Exit strategy for Nvidia stock trading
Sticking to this stop loss level can help you avoid big losses if the trade goes south.
According to the IBD inventory checkNvidia stock is ranked #1 in its group and has a Composite Rating of 99, an EPS Rating of 99 and a Relative Strength Rating of 98.
Keep in mind that options are risky and investors can lose 100% of their investment.
This article is for educational purposes only and is not a trading recommendation. Remember to always conduct your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a master's degree in applied finance and investments. He specializes in income trading using options, is very conservative in his style and believes that patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter @OptiontradinIQ
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