NVDA Underpriced Bullish Call Spread has Profit Potential of 104%

26 April 2024, 11:24 AM

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By Dmitry Pargamanik

How this NVDA Bull Call Spread Works

The bottom of the NVDA trade card shows us that we would buy one call and sell another with the same 24-May-24 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 24-May-24 910 CALL

Sell: 24-May-24 915 CALL

Reasons to Like This Trade

  • You can buy this spread for $2.45 when theoretically it’s worth $3.20. Simply put, the market is implying a theoretical edge of 30.4%.
  • Your maximum gain is $2.55, which means you can make an astounding 104.1% return on your investment in 21 trading days! (That's if the stock closes at 915 or above. $2.55 / $2.45 = 104.1%) At the time of this alert, the stock was trading at 867.04.
  • The stock only needs to close at, or above, 915.00 after 21 trading days for you to realize this maximum return. That’s only a 5.5% gain! If you look at NVDA historically drift, you will find that 63% of the time the stock drifted higher than 5.5% in 21 trading days. Based on historical stock behavior (historical stock drift) the spread has a 63% chance of success.
  • 6 out of 7 indicators are pointing to a bullish sentiment in the stock, which is enough to believe there is a decent chance the stock price could hit its mark of 915.00. Look, nobody knows for sure if the stock is going to go up or down, but, if you had to handicap the stock price, these metrics are indicating that NVDA is really riding the momentum of bullish signals.
    Metric Signal Bull or Bear
    Relative Performance 1-yr Outperform Bullish NVDA Bullish Relative Performance 1 year
    Relative Performance 3-Mon Outperform Bullish NVDA Bullish Relative Performance 3 Month
    Relative Performance 2-Wk Underperform Bearish
    Seasonality Strong Bullish NVDA Bullish Seasonality
    Technical Uptrend Bullish NVDA Bullish Technical Indicator
    Historical Price Action 81% Uptrend Bullish NVDA Bullish Historical Price Action
    Option Order Flow Sentiment Positive Net Option Delta Bullish NVDA Bullish Option Order Flow Sentiment

Conclusion

This trade in NVDA looks like a good opportunity because:

  1. 6 out of 7 bullish indicators support positive momentum
  2. 104.1% potential return on your investment
  3. Theoretical edge of 30.4%
  4. The stock price is only 5.5% away from the price for you to make the maximum gain!

Don't Let an Opportunity Pass You By!


How to Find More NVDA Bull Call Spread Strategies

How you can find bull call spread trade ideas for other stocks


And if you want to find more bull call spreads for other stocks, go to the bull call spread screener


Relative Performance

NVDA has outperformed the market in the last year with a return of +232.6%, while the SPY ETF gained +27.0%. In the last 3 month period, NVDA beat the market returning +41.6%, while SPY returned +4.6%. However, in the most recent 2 weeks NVDA has underperformed the stock market by returning -3.7%, while SPY returned -1.7%.

Learn about a stocks relative strength


Seasonality: Strong

The strategy involves holding the position from Apr 26 to May 24 expiration. Historically, this has been a strong seasonal period. In the past 12 years, NVDA shares have increased 58% of the time between Apr 26 to May 24, while averaging a return of +5.8%. Learn how to look up stock seasonality.

Technical: Uptrend

The stock price and moving averages are all crossing each other in a positive trend.

Historical Price Action: 81% Uptrend

In the last 4 years, there were 16 historical samples of NVDA stock price movements over the same time period as this option spread. The stock moved up 81% of the time for an average return of +18.2%.

How to generate statistics on a stocks historical price return distribution

Option Order Flow Sentiment: Positive Net Option Delta

At the time of this NVDA trade idea, bullish option order flow exceeded bearish option order flow. The net option delta volume was 1.8 M.

Learn more about option delta volume.

Find out the latest sentiment from the options market for NVDA

Videos you might like

How to Screen for the Best Bull Call Spread


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NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


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