To The Moon

Nvidia stock fails to reach new highs recently, combined with recent bearish price action, suggests a potential significant trend change could be afoot. The top changes are the latest earnings projections for its FY Q4, the potential for tighter chip export restrictions.

Despite the fundamental uncertainties just mentioned, NVDA's IV is currently at 38.47%, a relatively low level. Thus, it’s reasonable for investors to hedge their positions with low cost or gain exposure with limited total capital exposure ahead of FY Q4 earnings.

Source: Tiger Trade App

White House Unveils New Curb

The White House unveiled sweeping new limits on the sale of advanced AI chips by Nvidia Corp. and its peers, leaving the Trump administration to decide how and whether to implement curbs that have encountered fierce industry opposition.

The rules, which are set to take effect in one year, establish caps on the amount of computing power that can be sold to most countries. Businesses in those places can bypass national limits by agreeing to a set of security and human rights standards, US officials said Sunday.

Similar to the rules for importing countries, companies in the US and nearly 20 allied countries can agree to US government standards and win permission to ship to the restricted nations.

The goal of the measures, which companies such as Nvidia and Oracle Corp. have warned could be catastrophic for the US tech industry, is to ensure that the global development of AI aligns with American standards and relies on US — not Chinese — technology.

FY Q4 Earnings Growth May Slow Down

It has been estimated that as much as half of Nvidia's sales come from just four companies, namely Microsoft, Meta Platforms, Amazon, and Alphabet, while Tesla is also thought to be a significant customer. One risk that has been well documented is that the major cloud computing customers reduce their reliance on Nvidia's chips via their own in-house AI chip development efforts.

Looking ahead to the upcoming quarter and full FY (its FY Q4 earnings report is scheduled with an announcement date of February 26, 2025, post-market), it is likely that its growth will slow down. Analysts estimate a normalized EPS of $0.85 and GAAP EPS of $0.83, translating into a sequential increase of around 5% and an annual growth rate of 64%. These are of course still robust rates in absolute terms. However, they might fail to excite investors given the high expectations baked into its valuation multiples.

Three Option Strategies to Consider

Selling Call Options (Covered Call)

• Description: If you own shares of NVIDIA, you can sell call options against your holdings. This strategy generates income from the option premium but limits your profit if the stock rises above the strike price.

• Example: Sell call options with a strike price of $140, which you expect the stock won't surpass. You'll collect the premium while keeping your shares.

  $NVDA 20250221 140.0 CALL$

Bear Put Spread

• Description: This strategy involves buying a put option at a higher strike price and selling another put option at a lower strike price. It limits your losses and reduces the net cost.

• Example: Buy a put option with a strike price of $135 and sell a put option with a strike price of $130, both expiring in Feb 21th. This lets you profit from a moderate decline in the stock.

• Max Profit: $265.00; Max Loss: -$235.00; Breakeven Point: $132.65

$NVDA Vertical 250221 130.0P/135.0P$ 

Source: Tiger Trade App

Short Strangle

• Description: This strategy involves selling a call and a put option at different strike prices. This allows for a wider range of movement compared to a straddle and is beneficial if you expect low volatility.

• Example:

  • Sell a $140 call option and a $130 put option, both expiring in February 2025.

  • Premium Collection: You collect premiums from both options. As long as NVIDIA’s stock price stays between $130 and $140 at expiration, both options may expire worthless, enabling you to keep the premiums.

  • Max Profit: $1057.50; Max Loss: -∞; Breakeven Point: $119.42; 150.58

    $NVDA Strangle 250221 130.0P/140.0C$

    $(NVDA)$