Nvidia stock has suffered on the charts long term
Semiconductor name Nvidia Corporation (NASDAQ:NVDA) has struggled since its early October highs. The shares broke below $145 -- around half their all-time high -- last month, and after a subsequent bounce are running into resistance at the $158 level. This area is home to NVDA’s June 20 intraday high and a breakdown of a trendline connecting higher lows since its December bottom. The stock is also staring up at the 160-day moving average and its mid-May earnings close, both of which could act as a ceiling. As such, now looks to be time to buy puts on NVDA.
What's more, short-covering potential on Nvidia is limited, with a mere 2.4% of the equity's float dedicated to these bearish bets. It would take traders not even two days to buy back their short positions, at the equity’s average pace of trading.
Analysts are mostly bullish, with 19 "buy" or better ratings on the books. If some of these bulls even move to a neutral view, it could create headwinds for the shares. Similarly, the average 12-month price target from this group sits 20% above NVDA’s current price, leaving the stock vulnerable to potential price-target cuts.
Short-term options are relatively cheap at the moment, too, per the stock's Schaeffer's Volatility Index (SVI) of 36%, which ranks in the low 13th annual percentile. Echoing that, the security's 30-day at-the-money implied volatility of 36.2% ranks in the 26th percentile of its annual range, which means short-term options have priced in lower volatility expectations only 26% of the time during the past year. In other words, it's an opportune time to buy put options in anticipation of additional downside in the stock during the weeks ahead.
Subscribers to Schaeffer's Weekend Trader options recommendation service received this NVDA commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.