Hey everyone. If you caught our livestream this afternoon at the close, you saw the earnings trade I put on for $NVDA using options.
If you didn't watch us live, then you missed the trade, and it's too late now. No biggie. You can skip the rest of the note.
If you did watch, and either you're watching from the sidelines and interested in how it plays out, or you did take the trade, read on. We'll discuss how I'm going to handle the exit tomorrow morning.
As a reminder, this afternoon, we put on a put ratio spread (1 x 2) in $NVDA Aug 30 (weekly) options. We sold short one 125 put and purchased two 115 puts for a net credit of $1.15, right at the last minute before the closing bell.
The PnL graph of this trade looks like this:
As of the time of this writing (7:30ET), here's a one-minute chart of $NVDA since the market closed at 4pm ET (2pm MT on this chart):
As you can see, so far, it looks like $NVDA is on track for a down opening. A lot can change between now and tomorrow's 9:30ET opening. But so far, the market doesn't appear to be happy with NVIDIA's earnings report.
I plan to exit this trade during the first 30 minutes of the regular trading session tomorrow. My plan for exiting looks like this:
If $NVDA is above $125:
I'll hold until I can close the spread for a 50-cent debit, booking a small win.
If $NVDA is below $125:
I'll look to close the spread for whatever I can get. The lower in price $NVDA is, the more we're likely to earn for the spread. I won't hurry my exit, but neither will I take my time. Because unless $NVDA is below $100 per share (which seems unlikely at the moment), then theta decay on the 2x long puts at the 115 strike is going to rapidly erode the total value of this spread. So, it's time to get out (hopefully for a nice profit).
I'll be live on the Morning Show tomorrow AM around 9:30 am and we'll discuss my exit live, as it's happening if you'd like to tune in.
If you have any questions on this trade, please send them here.
If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.
~ @OptionsSean
