Signal Says Don't Sweat Semiconductor Stock's Pullback

NVDA options are affordably priced at the moment, too

Deputy Editor
Oct 26, 2020 at 2:26 PM
facebook twitter linkedin

Semiconductor name Nvidia Corporation (NASDAQ:NVDA) is almost two months removed from its Sept. 2 all-time high of $589.07. That's impressive when you consider the equity bottomed out at $180.68 during the broader market's mid-March pullback. So should investors be worried that a 3% loss for the month of October, set to be its first monthly loss since March? If past is precedent, no, as this slide brings the stock back within a historically bullish trendline.

More specifically, Nvidia stock is within one standard deviation of its 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, NVDA has tested support at this trendline six other times over the past three years. The stock was higher a month later 67% of the time, and averaged a 4.1% gain for that time period. A move of similar magnitude from NAV's current perch of $526.90 would put the equity at $548.50 -- and nearly erasing the October and quarterly deficit.

NVDA Chart October 26

In the options pits, there's a increasingly strong appetite for puts at the moment. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows Nvidia stock with a 50-day put/call volume ratio of 0.77, which ranks higher than 93% of readings in its annual range.

What's more, options traders are pricing in relatively low volatility expectations at the moment, per NVDA's Schaeffer's Volatility Index (SVI) of 52%, which sits in the 27th percentile of all other annual readings -- a boon for premium buyers. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) sits at a relatively high 79 out of 100. This means the stock has greatly exceeded option traders' volatility expectations during the past year -- a boon for options buyers.


Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners