NVDA Bullish Call Spread is Undervalued at $3.00

8 May 2024, 11:27 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 31-May-24 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 31-May-24 900 CALL

Sell: 31-May-24 905 CALL

Reasons to Like This Trade

  • You can buy this spread for $3.00 when theoretically it’s worth $3.75. Simply put, the market is implying a theoretical edge of 25.0%.
  • Your maximum gain is $2.00, which means you can make an astounding 66.7% return on your investment in 17 trading days! (That's if the stock closes at 905 or above. $2.00 / $3.00 = 66.7%) At the time of this alert, the stock was trading at 906.47.
  • The stock only needs to close at, or above, 905.00 after 17 trading days for you to realize this maximum return. Since the stock is already above your ideal price of 905.00, you have a cushion in the strategy. The stock can decline by -0.4% and you'll still break even. If the stock stays here or goes higher you will make your max gain.
  • 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 905.00. 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 Outperform Bullish NVDA Bullish Relative Performance 2 Week
    Seasonality Strong Bullish NVDA Bullish Seasonality
    Technical Bearish
    Historical Price Action 75% 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. 66.7% potential return on your investment
  3. Theoretical edge of 25.0%
  4. The stock price is already at the price point for you to make your max gain and can even go down by -0.4% and you'll still break even!

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 price return of +214.9% while the SPY ETF gained +26.9%. NVDA has also outperformed the stock market ETF in the last 3 month and 2 week periods returning +28.8% and +9.6%, respectively, while the SPY returned +4.1% and +2.3%, respectively.

Learn about a stocks relative strength


Seasonality: Strong

The strategy involves holding the position from May 8 to May 31 expiration. Historically, this has been a strong seasonal period. In the past 12 years, NVDA shares have increased 75% of the time between May 8 to May 31, while averaging a return of +9.9%. Learn how to look up stock seasonality.

Technical:

None

Historical Price Action: 75% 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 75% of the time for an average return of +16.1%.

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 863 K.

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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About the Publisher - Marketchameleon.com:


Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



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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