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.

Outlines

00:00

📈 Nvidia's Upcoming Stock Split and Its Implications

In this paragraph, Tom Preston from Tasty live discusses Nvidia's 10-for-1 stock split scheduled for June 7th. He explains the mechanics of a stock split, using the example of owning 100 shares at $11,000 each, which would turn into 1,000 shares at $100 each post-split, with no change in the overall value of the investment. He emphasizes that stock splits are non-economic events and do not alter a company's market cap. The reason for Nvidia's stock split is to make the stock more accessible to retail traders, potentially attracting more investors and signaling bullish sentiment. Preston also touches on the impact of the split on options, noting that the strike prices will be one-tenth and the number of options will increase tenfold, but the Greeks, particularly Delta and Theta, will adjust accordingly. He suggests waiting until after the split to trade Nvidia to avoid adjustments and mentions Nvidia's significant influence on the SMH semiconductor ETF due to its large weighting in the index.

05:00

🦄 Trading Strategies for Semiconductor ETFs and Intel

The second paragraph delves into potential trading strategies related to the semiconductor market, focusing on the SMH ETF and Intel. The presenter examines an iron condor strategy for the SMH ETF, which has a high implied volatility (IV) rank, suggesting potential for a trade that involves selling a put spread and a call spread to collect a premium. The strategy involves specific strike prices and expiration dates, aiming to profit from expected stability in the market with a defined risk and reward profile. Additionally, the paragraph explores Intel's underperformance compared to Nvidia and suggests a zebra option strategy or a simpler call spread as potential bullish trades. These strategies are based on the expectation that Intel may rally and catch up with other semiconductor stocks. The presenter evaluates the probability of profit, potential loss, and the attractiveness of the trades based on their risk-reward ratios and positive Theta values.

Keywords

💡Stock Split

A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing more shares to current shareholders. In the video, it's mentioned that Nvidia's stock will undergo a 10-for-1 split, meaning for every share held, shareholders will receive nine additional shares, and the stock price will be reduced to 1/10th of its original value. This is a key concept as it directly relates to the theme of the video, which discusses the implications of Nvidia's stock split on trading and investment.

💡Theoretical Effect

The term 'theoretical effect' refers to the expected outcome or impact based on a theoretical model or assumption. In the context of the video, it is used to describe the net effect of a stock split on a shareholder's portfolio value, which is theoretically zero since the total value of shares remains the same despite the increase in the number of shares and decrease in their individual prices.

💡Market Cap

Market capitalization, or market cap, is the total market value of a company's outstanding shares of stock. The script clarifies that a stock split does not increase a company's market cap, as it is a non-economic change that only adjusts the number of shares and their price without affecting the company's underlying value.

💡Accessibility

In the video, 'accessibility' is used to describe the increased ease with which retail investors can purchase shares of a stock after a stock split. By reducing the stock price through a split, Nvidia aims to make its shares more accessible to a broader range of investors, which could potentially be seen as a bullish signal.

💡Options

Options are financial instruments that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specified time frame. The video discusses how a stock split affects options by adjusting the strike prices to one-tenth of their original value and increasing the number of options held by the investor by a factor of ten.

💡Greeks

In options trading, 'Greeks' refer to a set of measures that describe the risk of an options portfolio. The video mentions the impact of a stock split on the Greeks, particularly Delta and Theta, which represent the rate of change of the option's price with respect to the underlying asset's price and the rate of decline in the value of the option with the passage of time, respectively.

💡ETF (Exchange-Traded Fund)

An ETF is an investment fund that holds assets such as stocks, bonds, or commodities and is traded on stock exchanges much like individual stocks. The video discusses the Semiconductor ETF (SMH), which includes Nvidia as a major component, and how the stock split might affect the ETF's performance and trading strategies.

💡Iron Condor

An iron condor is an options trading strategy that involves selling out-of-the-money call and put options at two different strike prices while simultaneously buying further out-of-the-money calls and puts to limit the potential loss. The video suggests using an iron condor strategy in the context of trading the Semiconductor ETF (SMH), considering the impact of Nvidia's stock split.

💡Volatility

Volatility in finance refers to the degree of variation of a trading price series over time. The video mentions the potential effect of Nvidia's stock split on the volatility of the Semiconductor ETF (SMH), which could influence trading strategies such as the iron condor.

💡Zebra Option

A zebra option, also known as a zero-cost back ratio, is an advanced options strategy that involves buying and selling call options with different strike prices and expiration dates. The video discusses a zebra position in Intel as a potential trading strategy, reflecting the video's focus on options trading and the nuances of different strategies.

💡Delta

Delta in options trading measures the sensitivity of an option's price to a $1 change in the price of the underlying asset. The video uses the term 'Delta' to describe the risk associated with different trading strategies, such as the zebra option in Intel, where the strategy has a Delta of around 20, indicating a moderate level of risk.

Highlights

Nvidia's upcoming stock split is one of the biggest in recent times.

Stock splits can be confusing but do not inherently change the company's value.

A 10-for-1 split means if you own 100 shares, you'll own 1000 shares after the split.

The stock price will be 1/10th of its original value post-split.

The net effect on your portfolio's profit and loss is theoretically zero after a split.

Nvidia's split aims to make the stock more accessible to retail traders.

A stock split is a non-economic event and does not increase market cap.

If you own options in Nvidia, the strike prices will be 1/10th post-split, and you'll get 10 times the number of options.

The impact of a stock split on options includes changes to the Greeks like Delta and Theta.

Delta does not change, but Theta will decrease due to lower option prices.

Nvidia is a major component of the SMH semiconductor index ETF.

Nvidia's performance is driving the SMH ETF's rally.

An iron condor strategy in SMH could be effective due to Nvidia's influence.

Intel has been underperforming compared to other semiconductor stocks.

Intel's low IV rank makes debit spreads more attractive for trading.

A zebra position in Intel is suggested as a potential trade.

A simple call spread in Intel might be a good alternative to the zebra trade.

Positive Theta in trades is preferred, even for debit spreads.

Transcripts

nvidia's upcoming split is one of the

biggest we've seen in a while stock

splits can be one of the more confusing

parts of trading but they don't have to

[Music]

be I'm Tom Preston Chief Market strand

to Tasty live and I'm going to cover

that topic as well as a couple of trade

ideas at the end of this video so stick

around for this week's Cherry picks Mike

rentin and Nick Batista put out a really

interesting Cherry picks this week

talking about nvidia's upcoming stock

split it's going to split 10 for one on

June 7th what does that mean as they

explain if I have 100 shares of Nvidia

right now and Nvidia right now is about

$11,000 a share what's going to happen

when that 10 for one split happens the

stock price of Nvidia will be 110th of

what it was so it'll go from 1,000 to

100 and you will get

instead of 100 shares your 100 shares

will turn into a th000 shares the net

effect on your p&l is theoretically zero

you'll have the same risk exposure to

Nvidia that you always had in other

words the same dollar amount in your

account in Nvidia won't change and

here's the important thing to realize

about all stock splits and and corporate

actions in general is they don't change

the company's value so so company won't

be allowed to do say a well we'll do a

stock split and increase our market cap

by 10% that's not what happens okay you

can't do that a a uh a stock split is

really a

non-economic chain theoretically why why

would they do this in the first place

why would Nvidia do this at all it's to

make their stock more accessible here's

the deal if I want to buy a 100 shares

of a $10,000 or $1,000 stock I need

$5,000 of cash Capital to invest in them

if I make it a $100 stock it's more

accessible to more retail Traders that's

why they're doing it and if it attracts

more retail investors there's an

argument that you can make that it's a

bullish signal for NVIDIA maybe that'll

happen maybe it won't that's a trading

decision that you have to make on your

own but what happens is if you do own

options in Nvidia the strike prices will

be oneth of their size and you'll get 10

times the number of options they also

pointed out the the impact on the Greeks

like Delta gamma things like that the

important one to realize is that Delta

does not change Theta is going to in is

going to decrease mostly because the

option prices are lower again option

prices are linearly related to the stock

price so the option prices will be oneth

of their value but you'll get 10 times

the quantity so that's how you think

about the nid stocks blade if I were

trading Nvidia right now or if I were

thinking about opening up a new position

in

Nvidia I might wait until the split just

to make it easier so I don't have to

deal with any adjustments the big issue

with Nvidia it is the major component of

the SMH uh semiconductor index it's an

ETF semiconductor index it's got Nvidia

and a TSM Taiwan semiconductor broadcom

Texas rment Qualcomm etc etc but at

20.65% in video

it's 1if of of the portfolio of SMH so

it's driving SMH but one of the things

that they've looked at is the

semiconductor uh ETF has P perform

performed very well because of that and

as Nvidia has taken off that you can see

this lower chart right here this blue

line is NVIDIA compared to everything

else up here SMH has been rallying along

with it mainly because it's composed of

its portfolio is 20% Nidia compared to

Q's spider etc etc that look relatively

flat even though they've been pretty

strong one of the things we might look

at is a trade in SMH and we're going to

take a look at that right now one of the

things they point out Mike and Nick

point out will this the Nvidia split

effect affect volatility in SMH

currently Nvidia accounts for over 22%

of the waiting in the semiconductor

index semiconductor ETF of the the

volatility contracts in Nvidia with a B

little bit of sideways action an iron

condor in SMH could work nicely short

the 215 235 put spread and the 260 280

call spread so 20 points on either side

let's see where they're doing that let's

take a look at uh SMH here's Nvidia and

again it's a $1,100 stock so let's look

at SMH here SMH has a 49% IV rank this

is again the first thing I look at is

the IV rank to see its relative

volatility let's go into the July

expiration click on the bid price of the

235 put I will click on the as price of

the 2115 put so this creates the short

put spread of the iron Condor and the

260 click on that and buy the 280 this

is an iron Condor 20 points wide collect

$736 credit that's about a third of the

width of the strikes a little bit more I

like that that's my target very low

Deltas about two Delta of exposure most

importantly here are the numbers that I

look at that has a 68% probability of

making half of its Max profit which is

theoretically

$734 is the max so about 350 or so 360

is its half of its profit has a 67%

probability making that Max potential

loss is

1,265 it's that you have to be

comfortable taking that risk but it

generates $750 56 cents of positive

Theta per day these are numbers that I

think make it a relatively attractive

trade so this is something that I would

consider if I wanted to take less risk I

would probably move these strikes down

and turn it into a 10-point iron Condor

collect 263 I'd like to see maybe $3 in

this this is how I find trades I just

adjust the strikes up and down until I

find what I'm looking for so the 220 230

on the put side 265 275 only has 6 $43 a

risk still collects about a third of the

width of the strikes 71% probability

making half its profit and generating

390 of positive data either one of these

trades I think is a is an interesting

possibility the next trade that they

talk about the in is Intel and Intel is

a really interesting situation Intel

another Semiconductor Company has been

drastically underperforming the other

semiconductor stocks why I don't know I

don't really care okay a Trader that

really doesn't bother me but to look at

this stuff for a second here is and

again I'm not a big chart person but

here's Invidia surging here's Intel okay

it's the complete opposite as much as

nid Nvidia has been rallying Intel has

been dropping the other point with Intel

is it only has a 13.4 IV rank that means

debit spreads look more attractive let's

see what the guys are taking a look at

here um it's low volatility the

underlying that's right which means the

stock Replacements demon strategies

trade very cheap well relatively cheap

okay I won't say very cheap it's

Everything's Relative if you think that

Intel might catch up might rally back um

in turn with the other semiconductor

stock they're looking at a zebra

position which is long 2x two times the

29 calls and short one time the 32 calls

off for around 100 deltas and a 463

debit yeah again the the zebra the zero

cost back ratio I think is what they say

it stands for I you could do that sort

of trade I might keep it a little simple

and just do the

2932 call spread let's load that up in

Intel and which expiration are they

looking at at the July 19th I open up

July 19th and let's see the

29 uh 32 just a call spread that's an

interesting trade again it's bullish has

about 20 Delta is a risk so not as much

risk as the zebra what if I pull that to

the 31s here's what I like about the

2931 two points wide again has a 58%

probability of making half its Max

profit Max profit is about $92 talk

about 45 bucks Max loss is 108

relatively low risk almost a one:1

profit to loss ratio but very

interesting it has positive Theta I like

trades even debit spreads to have

positive Theta so yes you can do the

zebra which is um buying two of these 20

or two of these 29 calls selling a 32 or

keep it a little bit simpler buy a 29

call sell a 31 call just a long call

vertical has positive Theta decent uh

p50 number and that's how I might trade

a bullish trade in Intel thanks for

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