Using Options to Strategically Bet Against Nvidia at the Peak of the AI Rally

Are you an investor interested in the AI sector and the chip industry? If so, you may have noticed a surge in AI-related stocks over the past year. However, there are signs pointing to a potential pullback in the chip sector. In this blog post, we will review a bearish options set-up that could benefit from a semiconductor sector pullback.

One stock that we are looking at for a potential bearish trade is Nvidia (NVDA). We are considering using a bear put spread as the trade structure. When analyzing NVDA, we are looking at key indicators such as the Relative Strength Index (RSI) and downside targets.

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The RSI is a tool that helps assess the strength of a stock. When the RSI exceeds 70, a stock is considered overbought. We are waiting for the RSI to dip below 70 before considering a bearish trade setup.

In addition to RSI, we are also looking at downside targets for NVDA. While the stock is in a bullish trend, it is important to project how far NVDA might fall before attracting buying interest. We are using Fibonacci retracements and the 20-day Exponential Moving Average (EMA) to confirm our downside targets.

The trade structure we are using is called a bear put spread. We have selected $870-$860 as the strikes for our bear put spread on NVDA. If NVDA stays above $830, this trade will still be valid. Our exact trade setup is to buy a $870 put and sell a $860 put, both with an April 12th expiry.

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By implementing this bear put spread strategy on NVDA, we have the potential to profit if the stock trades at or below our short strike by the expiration date. With careful risk management, this trade could yield a 100% return on investment.

As always, it is important to conduct thorough research and seek advice from a financial advisor before making any investment decisions. Stay tuned for more insights and trading strategies from Nishant Pant, the founder of Mean Reversion Trading. Follow us on Youtube and Twitter for more updates. Remember, investing involves risks and it’s important to be cautious with your financial decisions.

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