Here’s my take on Nvidia ($NVDA), and the implied move by the options market – November 20, 2023
This is Dan Fitzpatrick with FITZ IN FIVE. This is NVIDIA ( NASDAQ: NVDA ).
Now, finally today the stock broke through 500.00, which is a little bit weird but at the same time a little bit telling. It traded as high as 506.00. And you can see by where it’s trading now and where it closed, it’s right there, very close (this is regular hours) to the all-time high.
So what does this really tell us? Well, they report earnings 24 hours from now, at the market close tomorrow. And as you probably know, you better know, the stock has been trading between 500.00 and 400.00, it just couldn’t push through $500.00. I have sensed that, if it does push through 500.00, this thing can go a lot further.
In other words, I don’t think you would even have to rush in to buy this before earnings tomorrow because you are afraid to miss the move. If they report earnings that the market likes, and that involves, not just what they made because you know they made a ton of money, but also what their guidance is, things like that.
What they say on the conference call is going to be a big deal. In particular, how does China fit into all of this, what’s up with that? Because the US is not letting them do business with China with certain technology. I don’t really know that much about it. The bottom line is, that people in the government don’t want China to get all of this technology.
The bottom line is, that we need to hear more about that so that we can get a sense of whether analysts are going to start raising their price targets further. I had told Charles Payne, I think it was just after they reported earnings that if the stock could push through 500.00, it could even go as far as 1,000.00.
That is just based on measured moves, and also, just knowing what I know, or what I think I know anyway, about how analysts work as far as continuing to chase a rapidly growing company like NVIDIA ( NASDAQ: NVDA ), continuing to chase the stock higher.
This is what they have to do, always trying to stay ahead of the game, “Oh, my price target was $450.00, well crap it’s $500.00, the company is doing awesome so I can’t keep it there. And I’m not going to put it up at 500.00. I know, 650.00, that’s my new price target. And then the stock starts running up to there and pretty soon that becomes not high enough.
And so they consistently try to stay ahead of the price. And if the price starts to go parabolic, then their price targets have to keep getting higher and higher and higher, and higher as they try to stay ahead of the price. And then, fine, the price keeps going up, their price targets go higher, and they’re looking like superstars all the way up to here.
But then, as soon as the company reports anything that does not give everybody the good touchy feelies, that they report something that makes analysts think that maybe these guys are growing awesome, they’re growing amazing. It seems like maybe they are slowing down just a little bit. Then suddenly, these price targets all go away. This went up there, and then suddenly the big nosedive happened.
We’ve seen this with these high-flying companies before. So we could indeed see this with NVIDIA ( NASDAQ: NVDA ). Today’s price action doesn’t give us clues one way or another. I think this is institutional buying, the day before earnings are released, maybe it is just short covering. Maybe it’s an interplay between the options market and the stock market, I don’t know.
But I will tell you this, psychologically it is an important thing for the bulls. Also, technically, it shows us that there is demand for the stock above 500.00, which was an all-time high back here when earnings were released. The difference is, this thing popped up bigly, over 6 percent from the close, into the next morning.
I remember this, it actually went well above $500.00 premarket. And so, the point is, this is at a new high. So psychologically is a good thing. Also, nobody is a loser. Where this stock is right now, every single person holding this stock is making money. And that always makes me kind of happy if I am one of those guys.
This is the thing though, what I am looking at now, based on the options market is, and this is an applied move, you can get this any number of ways by looking at a straddle of the at-the-money options on the front month or front week expiration. You add them both together and divide, and then you take a certain percentage, screw it.
Look at the upper right-hand corner of your think or swim trading grid and you will see the number right there, implied move. It gives you a percent, I don’t really care about that. I care about the number, $38.00 is right now, and that will change between now and tomorrow, but it won’t change that much. The implied move is $38.00 up or down from where the stock is right now.
So where it is currently here, it tells us that on the upside the maximum that the market is expecting the stock to move is up to 543.00. And the maximum the market is expecting the stock to move down if it sells off is 467.00. I have just drawn this box, generally speaking, right here. So the options market is expecting the stock to stay within this range.
Now, with that said, and this is important, particularly on the downside, you need to be mindful of this number, and here’s why. Because let’s say the numbers come in and the market doesn’t like it. I have seen this happen so many times, if the stock falls down and it opens outside here, let’s say it opens at 450.00 or 460.00, and it might. I don’t know why or whether it would, but it might.
If it opens here, just below this line, you’ve got to fade that move. You’ve got to buy that move. Because of this implied move box here. When a stock falls out of it, it will tend to snap back within it because it is breaking the laws of probability. At the same time, if the stock gaps up above this level here, you want to be fading that trend.
Because, yes, the numbers are great for this and that and the other thing. But if this thing is up above 543.00 there are going to be sellers coming in that are taking those profits. And they will say, “Thank you very much”, then they will wait for 2, 3, 4 days, they’ll wait until next week, and then they will buy the thing back for a lower price.
That is why I have made this box into a little green box. Because here is where the money is. And that is where the stock is going to tend to go if it goes outside that box. My bet is, it will probably just stay in here. But I do sense that we’ve got an upside bias here on this. So just know, that on a stock like this, holding the stock, I sure wouldn’t be short it, but holding the stock over earnings is always a very risky thing.
Certainly, holding calls, some of you like to speculate on call options, just know, that your downside is limited when you are buying call options. When you own call options your downside is limited, and I’m not joking here or being flippant, it is limited to the amount that you bought it for.
So if you are buying front month or front week options under the anticipation that the stock is going to really jump and so you’ve got a bunch of call options, maybe that’s the case. However, you also have to know that the market has already priced that possibility in, so it is already baked into the price of the option. So you could be long calls and do really, really well.
But if the stock goes the other way, it is very, very lonely in your world. Because you are going to be long calls that nobody wants because everybody sees the same thing. So you are left in a situation where it’s a game called, How come nobody wants my options? And you don’t want to be playing that game.
So just be mindful, if you are going to buy call options or puts or whatever, just know that you’re putting 100 percent of it at risk. And so if you want to spin the wheel with a little bit of money that you are totally willing to lose it all in order to have some fun, then go ahead and do that.
But if you are looking at it and saying, “Well, I’ve got a real feeling about this but there is no way I am going to lose all my money here because that would be a disaster for me.” Okay, well then don’t make that trade, don’t be a dope.
So I will leave you with that. We will see what happens tomorrow after the close and maybe we will make some money. But we are darn sure not going to lose a bunch of it.
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