This Is How You Can Profit From The Nvidia Stock Split

Summary

In this video, Tom Preston from Tasty Live discusses Nvidia's upcoming 10-for-1 stock split on June 7th, explaining that it makes the stock more accessible to retail traders without changing the company's value or an investor's risk exposure. He also explores trade ideas involving Nvidia and the semiconductor ETF (SMH), suggesting an iron condor strategy in SMH due to Nvidia's significant influence on its performance. Additionally, Tom highlights a potential bullish trade in Intel, considering its underperformance compared to other semiconductor stocks, and proposes a zebra option strategy or a simpler call vertical spread as possible plays.

Takeaways

• 📈 Nvidia is planning a 10-for-1 stock split effective June 7th, which means shareholders will receive 10 times the number of shares they currently own, but at 1/10th the price per share.
• 💰 The stock split does not change the company's value or the shareholder's overall investment in the company; it's a non-economic change.
• 💡 The purpose of the stock split is to make the stock more accessible to retail investors, potentially increasing demand and signaling bullish sentiment.
• 📊 If you own options in Nvidia, the strike prices will be adjusted to 1/10th of their size, and you'll receive 10 times the number of options, with the Greeks like Delta and Theta being affected accordingly.
• 🔍 Nvidia's stock split could impact the volatility of the SMH ETF, which has Nvidia as its major component, accounting for over 20% of its portfolio.
• 🦄 An iron condor trade in the SMH ETF is suggested, involving shorting the 215-235 put spread and the 260-280 call spread, collecting a credit and aiming for a moderate profit with a relatively low risk.
• 🔢 The iron condor trade has a 67%-71% probability of making half its max profit, with a max potential loss of $1,265, generating positive Theta and a credit of around $350-$736.
• 📉 Intel, another semiconductor company, has been underperforming compared to Nvidia, presenting a potential opportunity for a bullish trade.
• 🦓 A zebra trade in Intel is discussed, which involves a long position in 2x the 29 calls and a short position in 1x the 32 calls, with a debit of around $463.
• 📝 Alternatively, a simpler bullish trade in Intel could be a long call vertical spread, buying a 29 call and selling a 31 call, with positive Theta and a decent probability of profit.
• 📚 The video script provides insights into stock splits, option adjustments, and specific trading strategies in the semiconductor market, offering viewers actionable trade ideas.

Q & A

What is the significance of Nvidia's upcoming stock split?

Nvidia's stock split is significant as it is one of the biggest splits in recent times. It will make the stock more accessible to retail traders by reducing the share price and increasing the number of shares, thus potentially attracting more investors.

What does a 10-for-1 stock split mean for an investor who currently holds 100 shares of Nvidia?

A 10-for-1 stock split means that if an investor holds 100 shares of Nvidia, they will receive 1,000 shares after the split. The stock price will be one-tenth of its original value, but the overall value of the investment remains the same.

How does a stock split affect the company's market cap?

A stock split does not increase a company's market cap. It is a non-economic event that changes the number of shares and their price but does not alter the company's underlying value.

What is the potential bullish signal of Nvidia's stock split for retail investors?

The potential bullish signal is that by making the stock more accessible with a lower share price, Nvidia could attract more retail investors, which could drive demand and potentially increase the stock's price.

How will options contracts be affected by Nvidia's stock split?

The strike prices of options contracts will become one-tenth of their original size, and the number of options will increase tenfold. However, the Greeks, such as Delta and Theta, will adjust accordingly, with Delta remaining the same and Theta decreasing due to lower option prices.

What is the impact of Nvidia's stock split on the SMH ETF?

Since Nvidia is a major component of the SMH ETF, its stock split could affect the ETF's performance. However, the impact on volatility and the ETF's value is not directly correlated with the stock split.

What is an iron condor strategy in options trading?

An iron condor is an options trading strategy that involves selling both a put spread and a call spread with different strike prices. It is used to profit from low volatility and can generate income if the stock price stays within a specific range.

What is the IV rank and why is it important for options trading?

The IV rank is a measure of an option's implied volatility relative to its historical volatility. It is important for options trading as it helps traders assess the relative cost and attractiveness of options strategies.

What is a zebra trade in options trading?

A zebra trade is an options strategy where a trader buys twice the number of a lower strike call option and sells the same number of a higher strike call option, often at a debit. It is designed to profit from a moderate move in the underlying stock's price.

Why might Intel be considered an interesting trade opportunity?

Intel might be considered an interesting trade opportunity because it has been underperforming compared to other semiconductor stocks, and its low IV rank makes debit spreads relatively cheap, potentially offering attractive entry points for bullish trades.

What are the considerations for a trader when evaluating a long call vertical spread?

When evaluating a long call vertical spread, a trader should consider factors such as the probability of making half or full max profit, the max potential loss, the profit-to-loss ratio, and the trade's Theta, which indicates the rate at which time decay works in favor of the trade.