Nvidia Bull Put Spread Could Return 22%

Nvidia (NVDA) has been range bound for a few months, but could be ready to start getting back into rally mode with earnings just around the corner.

NVDA rates as a Strong Buy according to 44 analysts with 3 Moderate Buy ratings, 1 Hold rating and 1 Strong Sell rating.

NVIDIA is a global leader in visual computing and the original inventor of the GPU, which revolutionized graphics and parallel processing.

Its focus has expanded from PC graphics to AI-driven solutions powering high-performance computing, gaming, VR, robotics, and autonomous vehicles.

With dominant positions in data centers and strategic partnerships with major cloud providers, NVIDIA continues to shape multi-billion-dollar tech markets.

Today, we’re going to look at a bull put spread trade. 

A bull put spread is a bullish trade that also can benefit from a drop in implied volatility.

The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

NVDA BULL PUT SPREAD

Implied volatility is currently sitting at 36.13% which gives NVDA an IV Percentile of 27% and an IV Rank of 10.19%.

Nvidia’s expected move between now and May 15th is around 7.8% in either direction. On the downside, that would put NVDA stock at around $168.

In other words, the options market is expecting NVDA stock to stay above $168 between now and May 15.

To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.

Selling the May 15th put with a strike price of $165 and buying the $160 put would create a bull put spread.

This spread was trading yesterday for around $0.91. That means a trader selling this spread would receive $91 in option premium and would have a maximum risk of $409.

That represents a 22.25% return on risk between now and May 15th if NVDA stock remains above $165.

If NVDA stock closes below $160 on the expiration date the trade loses the full $409.

The breakeven point for the bull put spread is $164.09 which is calculated as $165 less the $0.91 option premium per contract.

Nvidia is due to report Q3 earnings on May 20th, so this trade should not have any earnings risk if held to expiration.

Conclusion And Risk Management

One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $91, so we could set a stop loss equal to the premium received, or a loss of around $91.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $170.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.