I started investing in stocks just prior to the Dot-Com era back in 1998-1999. That was my first foray into the stock market and in the 25-26 years I've been investing, Apple is the one stock I've invested in the most. I closely tracked Apple through its entire resurgence era from near bankruptcy in...
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Interesting read. The only question I have is on the idea that NVDA is less likely to make big gains.
It appears to be following a similar path to last year in September. If analyst predictions of Blackwell demand and profit fat outstripping what we have seen for Hopper, I don’t see how it doesn’t do a similar runup in November off guidance or February off of flat out sells…Course I thought it would go to 150+ after earnings so….
I think the main thesis against NVDA will always be that its megacap buyers slow down purchases because the ROI hasn’t materialized after a couple years relative to the cost of the data centers. and then those megacaps shift their focus on bringing their installed AI investment into profitability before dropping more capital costs on continuous server upgrades as a means of derisking the AI investment.
If microsoft, tesla, Meta, and Alphabet stop buying then NVDA drops like a stone since there are not enough smaller customers with enough money in the bank to offset the drop in revenue.
Above you mention NVDA OTM covered calls and a $9.00 premium. Is $9 the total you would collect per 100 share contract, or is it $9 per share?
Thanks Sam.
So the $9.00 premium would be per share. So suppose you had 1,000 shares of Nvidia. if you sold 10 contracts of the January $170 calls in this scenario, you would collect $9,000. It would be the same as if you cut your basis in Nvidia by $9.00 per share.
For the leaps, it’s the same exact scenario. In the SW Portfolio, we own 4 contracts in the December $90 calls at a cost basis of $43.80 per contract or $17,520.00. If we sold 4 contracts in the January $170 calls at $9.00 per contract, we’d collect $3,600.
I hope you can see what that is very significant. That’s a straight $9.00 reduction in our $43.80 cost per contract. That’s a 21% discount in price.
And that’s only on ONE single correction. if we did this 5-6 times over the years, we’d almost reduce our basis to $0.00.
Makes a lot of sense! One question though: why would you go through the „trouble“ to profit from Nvidia when you could move on to stocks with more growth potential/more room to run?
A few reasons. First, I wouldn’t call it trouble. It only becomes not worth it if the volatility drops off which I don’t see happening anytime soon. Even Apple is a really good investment anytime it trades at allow P/E and/or anytime it falls 20-30% from its all-time highs. When that happens, it becomes an extremely attractive investment. The same goes for Nvidia. Every time we see Nvidia fall 20-30% like it has, it becomes a huge buying opportunity.
Secondly, and more importantly, the sky is the limit when it comes to AI. I think everyone can agree on that. AI breakthroughs apply to virtually all walks of life.
Finally, there’s a certain level of confidence we can have on Nvidia’s long-term direction given the level of revenue and earnings it reports and the arena in which it operates. This is true of Apple, Google, Amazon, Tesla, Microsoft, Netflix, Meta — all these companies are worth buying at the right discount because of the high degree of certainty that they’ll all eventually return to their all-time highs.
That’s why we’re looking at Google right now.
Thank you????, that makes sense!
Would you also discuss a bit on AMZN and TSLA on good entry point, overall strategy (similar to NVDA or no). thx
yeah of course. I traded Tesla pretty extensively in the past and will do so again in the future. Tesla is one of those high beta stocks that is easily to capitalize on when it gets oversold. We’ll for sure trade it.
Sam, so overall, are you saying it’s more advantageous to sell covered calls when NVDA nears overbought conditions? Let’s say it rallies to 150 in the next month, would you start selling covered calls with a strike of 175-225 with a 1 year expiration? Sorry, slowly getting up to speed with the concepts.
Yes. That’s he idea. Though not 1-year out. That’s way way too far. I was thinking more like 3-4 months out.
It depends on the situation. Obviously, we want as high of a delta as possible. Ideally, we sell at peak optimism. We’ll probably do that once we’re up a good 30-40% from the lows and deeply overbought.
hi Sam
How do you think the market will react to Wednesdays rate cuts?
Hey Sam,
Is your projection on NVDA reaching $150 by Jan 2025 still valid? I am thinking with the recent Jensen Huang speech and implications on the hot demand of Blackwell, it may run up to that number sooner. If that were to happen, would you stick to your covered call strategy ($170-$200 with Jan.2025 expiration)?
So I haven’t picked out any specific calls. I was just illustrating as an example of what we could have done had Nvidia just ran straight up from $90 to $150. Once we see an actual run up to $150, how that run proceeds, how much the NASDAQ-100 is off its lows, whether the NASDAQ-100 is overbought or not, seasonality, whether Nvidia is overbought and other factors will go into it.
It’s hard to make that projection when we’re not in the environment. With Nvidia we have to be very careful when decision on covered calls because the stock has the potential to run insane amounts and we don’t want to miss out on any of that.
Hey Sam, will your covered calls be included in trade alerts?
For sure. they’ll be in the trade alerts and listed as assets in the portfolio as a short sale. A covered call is just a call-options that we short. It’s covered because we have a long position insuring it.
But we won’t be selling a covered call for a very long time. The only time we’ll be doing that is when and if we believe Nvidia is at a high risk of sustaining a major correction.