IV at a Yearly Low! Is It Time to Buy NVIDIA Options?

NVIDIA’s stock price has been declining since its earnings report release. Over the past five trading days, it has dropped approximately 7%, losing around $250 billion in market value.

On November 26 (Eastern Time), NVIDIA options were actively traded, with a total trading volume of 3.3673 million contracts. Among them, 33.47% were put options, and 66.53% were call options.

Noteworthy Option Trade
A significant unusual bullish options trade occurred when NVIDIA was priced at $136.97. A call option with a strike price of $146.00, expiring on November 29, 2024, saw a trading volume of 46,500 contracts, involving $558,500 in total.

NVIDIA's Low Implied Volatility (IV)

Currently, NVIDIA's implied volatility (IV) is at 38.0, ranking at the 15th percentile over the past year. This means IV has been lower than this level only 15% of the time. Additionally, the current IV is 28.3% below its 20-day moving average of 53.1, indicating a very low volatility range.

When comparing IV with historical volatility (HV), using the 252-day HV as a benchmark, the current IV (38.0) is 23.0% lower than the average 252-day HV (49.4).

Strategies for Low IV
When IV is low, options are generally cheaper, making this an opportune time to use strategies that benefit from a potential rise in volatility. Here are some suitable options strategies:

1. Long Options

   • When to Use:
     When you have a clear bullish or bearish outlook on the underlying asset and expect IV to rise.

   • Details:

     • Long Call: Anticipate a significant price increase.

     • Long Put: Anticipate a significant price drop.

   • Pros:

     • Limited risk (premium paid).

     • Potential for substantial gains if the price moves significantly or IV rises.

   • Cons:

     • Losses occur if the price stagnates or IV decreases further.

2. Debit Spreads

   • When to Use:
     When you have a directional outlook and want to control costs.

   • Details:

     • Bull Call Spread: Buy a lower strike call and sell a higher strike call.

     • Bear Put Spread: Buy a higher strike put and sell a lower strike put.

   • Pros:

     • Lower premium cost than outright options.

     • Gains if IV rises, benefiting the spread.

   • Cons:

     • Profit is capped by the strike price difference.

3. Long Straddle

   • When to Use:
     When expecting significant price movement but unsure of the direction.

   • Details:

     • Buy both a call and a put with the same strike price.

   • Pros:

     • Gains from large price moves in either direction.

     • Lower entry cost due to low IV.

   • Cons:

     • Loss if price stagnates or IV decreases further.

4. Long Strangle

   • When to Use:
     Similar to straddle but better for events causing high volatility and lower cost.

   • Details:

     • Buy out-of-the-money call and put options with different strike prices.

   • Pros:

     • Cheaper than a straddle.

     • Suitable for high-volatility scenarios like earnings reports.

   • Cons:

     • Requires larger price moves to profit.

5. Ratio Spread

   • When to Use:
     When you have a clear directional bias and expect IV to rise.

   • Details:

     • Buy one option and sell two options in the same direction (different strike prices).

   • Pros:

     • Possible to collect a credit.

     • Gains from IV rise and directional movement.

   • Cons:

     • Complex risk profile; can result in significant losses.

Investors may consider these strategies to capitalize on NVIDIA's current low implied volatility, especially if expecting increased price movement or volatility in the future.