Nvidia options plays ahead of its stock split

Nvidia (NVDA) shares have slipped from the record highs it reached on Wednesday, when the company’s market cap briefly surpassing $3 trillion. But there’s something else Nvidia has in store for investors — a 10-for-1 stock split that is set to occur Friday after the market close.

Option Research & Technology Services Principal Matt Amberson notes that the price of Nvidia’s options are “extraordinarily high” given the high stock price, so the split will make the options “a lot easier” to trade.

Amberson says options traders could profit from “not being short, but being long spreads. You can do these way out of the money spreads in Nvidia and it’s a way to trade the options a lot more manageably for retail traders.”

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Stephanie Mikulich.

Video Transcript

Video jump to the $3 trillion market cap coming ahead of its 10 for one stock split tomorrow.

Our next guest points in video high share price and volatility as an obstacle for some options traders.

So how could the stock, what change things and how should options traders be preparing?

Joining us to discuss we Matt Anderson.

He is option research and technology services principal joining us here.

Thank you so much for being here with us.

So start with me about this stocks like coming up.

What should options folks be considering ahead of Friday as a potential trade off of that stock?

Yeah, thanks a lot for having me.

Uh The stock splits gonna make NVIDIA a lot more reachable for a lot of these retail traders.

Now you rarely see a stock over 1000 with a 50% implied volatility.

So the prices of the options are extraordinarily high.

Uh um So option traders are really looking forward to the split, we’ll be able to uh trade it uh a lot easier uh without the uh 12 thou $1200 price tag, which is quite high for, for option trader, just the normal option trader out there.

Yeah, I was going to say in terms of the retail investor out there, it’s a little bit complicated given that high price that we’re currently seeing right now.

So what would your advice there be?

Just in terms of, is there an opportunity, a risk reward set up?

That would make sense at this point?

Yeah.

Uh so in, in, it’s just a crazy stock, right?

It’s uh we haven’t seen this since 2, 2000 and, and there’s a, there’s a measurement called beta and uh the beta of NVIDIA is uh 1.7 meaning as the market goes up, it goes up a lot faster.

Uh when it goes down, it goes down a lot faster.

So option traders uh I think could profit from uh not being short uh but being long spread.

Story continues

So you can, you can uh do these way out of the money spreads in NVIDIA.

And uh it’s a way to trade uh this stock uh the options uh a lot more manageable for, for retail traders.

And NVIDIA tends to, as you saw in the, in the graphs before, you know, move one way they, we saw, you know, a large up move and a large down move.

And if you get some of these out of the money uh spreads, you can profit from that uh good risk reward as you, as you say.

Uh and then you, you, you measure that for not paying too much.

But you could get these out of the money spreads for not too much money, maybe like 4%.

You, you would buy a call and then sell a call.

$5 higher.

You could do the same for a put, uh, if you’re, if you’re bearish and then if you’re, if you’re, uh, neutral, you could do both at the same time.

So, uh, it, it does present some opportunities, uh, with the strikes relatively short together.

Uh you could get into some of these spreads uh with a relatively small uh initial investment, I wanna zoom out a little bit here on NVIDIA because I’m curious about to what extent options, traders should try to play the macro data for name like NVIDIA.

I think about the ISM yesterday, for example, driving the whole market higher including NVIDIA through things though like index funds ETF S does that still mean that a big Macro News Day is a good day to play your options on a name like NVIDIA?

Well, as I said before, the beta is so high that you get a lot more leverage with NVIDIA because really uh any interest rate announcement really affects NVIDIA uh with such a high pe as we heard from the earliest earlier guest, uh you know, the earnings are so far out that any change in expected interest rates really affect the the the price.

So you could get some very large moves, which is why you know, I, I would uh talk about out of the money, uh long spreads, especially before Mac announcements.

Like tomorrow, we, we, we have a few, we uh score those on, on my firm’s uh platform, uh the Macro events uh on a scale of 1 to 4.

And we have some, some big uh announcements tomorrow and especially interest rates announcements.

Uh You could play uh NB before those.

All right, Matt Emberson option, Research and Technology Services Principal.

Thanks so much for hopping on with us here this morning.

Thank you.