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Recently, Tiger Academy has faced challenges with trading Nvidia stock. Although Tiger Academy is a committed value investor, Nvidia's stock price experienced a dramatic surge, doubling in value. After reaching a previous high of $974, it began to experience significant fluctuations.

Despite Tiger Academy is a long-term bullish outlook, during these fluctuations, Nvidia's price dropped to $762, eroding about one-third of the accumulated gains. Although the price has since rebounded to over $900, technically, it remains in a high-range oscillation with converging moving averages.

For those familiar with technical analysis, it is well-known that when moving averages converge without significant changes in the fundamentals, it often indicates a likely directional trend. This means the price will either break out upwards or downwards. Given this potential movement, how should we approach our trading strategy?

In a volatile market, we generally have the following strategies:

1. Holding Stocks Waiting for a Price Increase

Holding stocks waiting for a price increase is a passive strategy used when there is no strong expectation of a price movement. The downside of this strategy is its passive nature; unless the stock price subsequently breaks out and rises, it will not generate profits. If the stock continues to fluctuate or breaks downwards, it is not an outcome we desire. Even in the best-case scenario, where we hold the stock until it breaks out, the success rate is only 50%.

2. Options Strategies

Under the expectation of fluctuation followed by a breakout, we can use options to profit. Specifically, we can employ the long straddle strategy or the sell put strategy. The former bets on a significant price breakout, while the latter bets on the stock price not declining. However, both strategies have obvious drawbacks.

Firstly, the straddle strategy faces the risk of total time value loss if the stock price does not break out or the breakout is minimal before the expiration date. In a fluctuating market, predicting the timing of the breakout is the most challenging aspect. Even if we anticipate an upcoming earnings season, the straddle strategy can be difficult to profit from unless the results far exceed or fall short of expectations. Therefore, the success rate of the straddle strategy in such a fluctuating market is relatively low.

Secondly, the sell put strategy, although it has a higher success rate and can be profitable whether the stock price fluctuates or rises, requires a significant margin and offers a lower yield. Additionally, if the stock price breaks downwards, the sell put strategy can incur unlimited losses.

It seems that mainstream trading strategies are not very effective under such market conditions! So, what should we do?

How to trade in a Fluctuating Market?

Given the circumstances, in a fluctuating market, if you want to minimize margin usage, achieve a high success rate, and generate high returns, then you can't ignore the recently popular FCN products.

What is FCN? In simple terms, it's a product designed to earn stable returns in fluctuating markets. In such conditions, compared to holding stocks waiting for a price increase, FCN can consistently earn interest and provides significant safety buffers against price declines. Unlike selling puts, FCN doesn't tie up margin and allows for maximum capital utilization to earn interest.

A mainstream FCN product typically has the following parameters:

• Underlying stock

• Investment term

• Interest rate

• Strike & knock-out prices

Taking an example of an FCN product linked to Nvidia available in the market, with a term of 3 months and an annualized interest rate of 15%, with a knock-out rate of 120%, the optimal execution price rate offered is 85.03%, with knock-out observed at the end of the term.

Currently, Nvidia's stock price is around $946, meaning that over the next three months, as long as Nvidia's stock price doesn't exceed $1135.2 ($946 * 120%) on each month-end observation day, the knock-out won't be triggered. Investors can then receive a fixed interest rate of 15% annually for three months until the product matures.

If the stock price exceeds $1135.2, triggering the knock-out, the product terminates, and investors receive interest for the holding period at an annualized rate of 15%.

If on any month-end observation day, Nvidia's stock price falls below $804.38, triggering acceptance of the stock, investors would purchase Nvidia stock at $804.38 per share and still receive the fixed interest of 15% annually for three months.

Clearly, FCN products are highly suitable for stocks in fluctuating trends. They offer superior risk management and cost-effectiveness compared to selling puts and holding stocks waiting for a price increase strategy.

Now, let's consider the three possible scenarios for Nvidia's stock price three months later:

1. Rises to $1200.

2. Fluctuates within the range of $1135.2 and $804.38.

3. Falls to $800.

Suppose an investor invests $946 to purchase an FCN product.

In the scenario of a stock price increase, the profit after three months would be $35.47, calculated as $946 × 15% × (3/12).

In the scenario of a stock price decrease, the loss from accepting the stock would be $5.15, calculated as ($4.38 / $804.38) × $946, while the interest income would still be $35.47. Thus, the net profit would be $30.32.

If after three months the stock price remains within the range of $1135.2 and $804.38, the investor's profit would still be $35.31.

It can be seen that in these three scenarios, the returns from FCN are relatively stable. In the case of a stock price decrease, FCN provides a higher safety margin. However, if the stock price continues to decline and exceeds the interest income, FCN would still incur losses. Nevertheless, compared to selling put options, FCN products offer relatively moderate risks and returns.

If $946 were invested in a sell put strategy, assuming the sale of put options with a strike price of $804.38, the investor would incur much greater losses in the scenario of a stock price decrease to $800.

Additionally, if an investor has a need to purchase a certain stock at a low price, this can still be achieved through FCN products, which is similar in effect to selling put options.