NVDA Option Straddle: Comparing Current Pricing to Historical Trends

Articles From: Market Chameleon
Website: Market Chameleon

NVDA’s Stock Momentum and Strategies for Harnessing Its Volatility

NVDA (NVIDIA Corporation) stock has soared to new heights this year, primarily bolstered by its advancements in AI technology. With a staggering gain of 238% over the past year, it’s one of the top-performing stocks in the S&P 500. As a result, investors, big and small, are extremely enthusiastic about the company’s products, jumping into the stock with fervor.

This fervor has its consequences. NVDA stock can be quite volatile, with investors constantly speculating on the implications of AI on its future revenue streams. For those looking to capitalize on this volatility, an option straddle might be an attractive strategy. In this article, we examine the NVDA 1-month straddle to determine if it offers good value relative to its price.

NVDA 1-Month Straddle Analysis

NVDA 1 Month Option Straddle Benchmark

NVDA 1-Month Straddle Analysis

Relying on the benchmark provided by Market Chameleon for a 1-month at-the-money straddle, the current straddle is priced at a 7.2% premium. This means that for the straddle to be profitable, NVDA’s stock would need to swing at least 7.2% in any direction to offset the combined premium of both the call and put options. Profits kick in for movements beyond this range.

Interestingly, there has been a downward trend in the straddle’s price. It’s now substantially lower than its 52-week average of 10.3%. Thus, from a historical standpoint, the current premium seems relatively affordable.

Historical Movements of NVDA

Considering the 7.2% movement required for the straddle to break even at expiration, it’s beneficial to assess how frequently NVDA stock has surpassed this threshold in the past. By using Market Chameleon’s historical return distribution tool and analyzing 4 years of data, some intriguing insights emerge:

Historical Movements of NVDA

– NVDA’s stock surged by more than 7% in 46.7% of the instances.

– The stock plummeted by over 7% in 17.8% of the cases.

Cumulatively, NVDA exhibited more than a 7% movement in either direction 64.5% of the time.

The average movement over these instances was +/- 13.16%, as you can see below. Given this historical context, the current NVDA straddle seems potentially undervalued.

The average movement over these instances was +/- 13.16%

In Conclusion

Knowing NVDA’s price trajectory in the upcoming month is, of course, impossible. However, for investors intrigued by NVDA’s volatility and wanting to exploit it, the 1-month straddle appears to be a compelling option. Not only is the straddle’s premium considerably lower than its historical average, but if past stock movements serve as any indicator, achieving the necessary price swing to cover the straddle’s premium seems entirely plausible.

Originally Posted September 28, 2023 – Is The NVDA 1 Month Option Straddle A Good Deal?

Disclaimer: The information provided in this article is for informational purposes only and should not be construed as investment advice, endorsement, or an offer or solicitation to buy or sell securities. The views expressed in this article represent the author’s opinions and should not be considered as financial advice. Investing involves risks, including the potential loss of capital. Before making any investment decisions, readers should conduct their own research and seek advice from a qualified financial advisor.

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