Nvidia Stock (NVDA) Shareholders MUST DO THIS BEFORE EARNINGS

Summary

Nvidia's earnings report on November 20th presents a major opportunity for investors, but expectations are already high, potentially limiting massive upside. The video outlines two key strategies: selling covered calls to generate income while managing risk, and buying leap options for long-term growth, especially to capitalize on post-earnings drift. With call options heavily skewed, the market sentiment is bullish, but gains may be capped. The video also emphasizes the importance of managing risk and positioning for both short-term earnings and long-term momentum. It’s a prime time to act, with clear strategies for scaling wealth fast.

Takeaways

• 😀 Nvidia's earnings report on November 20th is expected to beat expectations, but the stock price may not rise significantly due to already high market expectations.
• 😀 The options market is heavily skewed towards calls, indicating a bullish sentiment among investors, which could suggest Nvidia’s stock is nearing a peak.
• 😀 Despite the bullish outlook, the speaker believes that Nvidia will experience only modest gains (around 5-6%) following the earnings announcement.
• 😀 A covered call strategy is recommended for short-term income, where you sell calls on Nvidia shares you own to generate premiums, while managing the risk of having your shares called away.
• 😀 The speaker plans to adjust his covered call position by rolling up the strike price to $155, as he believes Nvidia could rise slightly above the original strike price of $148.
• 😀 A LEAP option (Long-Term Equity Anticipation Security) is a good choice for long-term investors who are bullish on Nvidia and the AI sector, with a recommended strike price of 130 and a 6-month expiration.
• 😀 Post-earnings drift is a key concept: Nvidia’s stock is likely to continue trending upwards after its earnings beat due to investor optimism and momentum in the AI sector.
• 😀 Selling puts (e.g., at 135 strike) is another option strategy that allows investors to generate income from premiums while potentially acquiring Nvidia shares at a lower price if the stock drops.
• 😀 Nvidia’s stock is expected to experience moderate movement post-earnings, and the speaker believes that the chances of seeing large gains (e.g., 20-30%) are unlikely due to high expectations already priced in.
• 😀 The speaker advises against blindly holding bullish positions and stresses the importance of managing risk and adjusting strategies as necessary, particularly when the market becomes too crowded with options traders.

Q & A

What is meant by 'skew' in the context of Nvidia options?

In this context, 'skew' refers to the imbalance between the prices of call and put options. A higher volume of call options than put options indicates that investors are more bullish on Nvidia's stock. This skew suggests that most market participants expect Nvidia to rise, but it also warns that the stock might not experience significant upward movement after earnings, as expectations are already high.

What does the speaker predict will happen to Nvidia's stock after earnings?

The speaker predicts that Nvidia will beat earnings, but the stock will likely rise only modestly—around 5-6%—because the market has already priced in a lot of positive expectations. They do not foresee a massive jump like in previous earnings reports, where Nvidia's stock could surge 20-30%. The speaker suggests that a big move is unlikely due to overly bullish sentiment.

What is the covered call strategy, and how is it applied in this scenario?

A covered call strategy involves holding shares of a stock and selling call options on those shares. In this case, the speaker owns Nvidia shares and has sold a 148 strike price covered call. This strategy allows the speaker to collect premium income from selling the call option. However, if Nvidia’s stock rises above the strike price (e.g., 148), the speaker risks losing their shares. The speaker plans to roll the call up to a higher strike price, like 155, to protect their position.

What is a LEAP option, and why is the speaker recommending it for a long-term play on Nvidia?

A LEAP (Long-Term Equity Anticipation Security) option is a type of options contract with an expiration date typically more than a year away. The speaker recommends buying a May 2025 call option with a 130 strike price as a long-term play for those who believe Nvidia will continue to rise. This strategy allows investors to gain exposure to Nvidia’s potential growth without needing to buy shares outright, and it benefits from post-earnings drift—a tendency for stocks to continue moving in the same direction after earnings reports.

What is post-earnings drift, and why is it important for Nvidia's stock?

Post-earnings drift refers to the tendency of a stock to continue moving in the direction of its earnings reaction for weeks or even months after the report. If Nvidia’s earnings are positive, the stock may experience continued upward momentum after the initial price reaction. The speaker believes this phenomenon will apply to Nvidia, with the stock potentially moving further up after the earnings announcement.

Why does the speaker believe that Nvidia's stock won't see huge gains after earnings, despite a potential beat?

The speaker believes that the expectations for Nvidia are already so high that even a strong earnings report will not result in a massive stock price increase. The market has already priced in Nvidia’s success, which limits the potential for a huge post-earnings surge. Therefore, while Nvidia might go up, it is unlikely to see a dramatic jump like it did in previous earnings seasons.

What are the risks of using a covered call strategy on Nvidia right now?

The risk with a covered call strategy is that if Nvidia’s stock rises significantly above the strike price of the call (e.g., 155), the investor will miss out on those gains because their shares will be called away. Additionally, since Nvidia’s stock has already risen a lot, the potential for large gains could be limited, so if the stock doesn’t move significantly higher, the investor might not fully capitalize on the upside.

What does the speaker mean by 'rolling up' a covered call?

Rolling up a covered call means closing out an existing covered call position (e.g., a 148 strike call) and opening a new one with a higher strike price (e.g., 155). This is done to adjust the position when the stock price rises and to avoid losing shares while still generating income from selling calls.

How does the speaker use implied volatility to inform their decision-making?

Implied volatility is a measure of the market's expectations for future price movement and is higher when options prices are more expensive. The speaker notes that implied volatility for Nvidia options is extremely high right now, which makes short-term options (like covered calls) expensive. In contrast, longer-term LEAP options have lower implied volatility, making them more attractive for a longer-term play as they cost less and still offer upside potential.

What is the speaker's general view on the current market environment, and how does it influence their strategy?

The speaker is generally optimistic about the market, believing that we are in a bull market where investors can make substantial profits. This positive sentiment shapes their strategy, as they are willing to hold long positions in stocks like Nvidia and Tesla, use options for income generation (e.g., covered calls), and even sell puts to potentially acquire stocks at lower prices. However, they also caution that market conditions will change, and they plan to make future videos on how to protect portfolios during a potential bear market.