Options market is telling us that "complacency" and "optimism" are setting in with Nvidia shareholders. That is hardly a surprise. Those states of positive attitude can last for awhile, but when they begin to wane, it would be time to consider protective put strategies or sell covered calls.
Nvidia CEO Jensen Huang Sells $49 Mln in Shares in July
Jensen Huang, the CEO of Nvidia, filed a report last Friday stating that he sold 75,000 shares of the firm, which is worth around $12.94 million. He can progressively sell up to 6 million shares as part of a planned strategy that includes this transaction.
Just earlier this month, he offloaded 225,000 shares for roughly $37 million. That brings his total stock sales in July to over $49 million.
The timing lines up with Nvidia’s incredible momentum in the market. The company has been riding high on the surge in demand for AI chips due to its top-performing GPUs. Nvidia even crossed the $4 trillion mark in market value, briefly becoming the world’s most valuable company beating out both Apple and Microsoft.
A Stock-Market Selloff Ahead?
As the market enters a high position, investors' sensitivity to profit realization and policy changes increases, and the risk of correction increases accordingly. The big question on most minds now is whether this record-setting run can continue.
Nasdaq index hit a record high of 20,974.17 this Monday but fell 0.39% in the following trading day. Nvidia closed 2.5% lower on Tuesday.
The S&P 500 topped out in February when its forward price-to-earnings ratio eclipsed 22. It bottomed out when the P/E ratio reached about 19. The recent rally has again pushed the S&P 500's P/E over 22, which historically doesn't correspond with favorable one-year returns.
The S&P 500 usually has a harder time generating gains when its forward P/E eclipses 22
Option Strategy
For protecting your $NVIDIA(NVDA)$ position while maintaining upside potential, two effective options strategies emerge: the Protective Put for downside protection and Covered Calls for income generation.
Protective Put
Premium: $3.15 per contract
Cost as % of Stock Price: 1.89% (vs. current price $167.03)
Maximum Protection: Limits losses below $165
Source: Tiger Trade App
Sell Covered Call
Premium: $2.88 per contract
Yield as % of Stock Price: 1.72%
Selling Return: 62.61%
Upside Cap: $170 (+1.78% from current price).
Source: Tiger Trade App
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