Leveraging options to profit from Nvidia’s price fluctuations and potentially acquire the stock at a lower cost

Recent market fluctuations have caused a significant drop in growth stocks, making some of the top performers available at attractive prices. This scenario presents a lucrative opportunity for options traders. Nvidia (NVDA) is a prime example, as lower interest rates and a recent decline in its valuation over the past month have made it a potential investment candidate. The high options premiums offer a chance to acquire the stock at a price more than 35% below its peak.

Analyzing NVDA’s chart, the stock broke through a major resistance level at $97 in late May following its earnings report. It then surged to an all-time high of $140 before retreating to this support level, creating a favorable risk/reward scenario for a long position. The recent sell-off shows signs of exhaustion, with lower lows in price not being confirmed by momentum, indicating a possible trend reversal.

From a fundamental perspective, NVDA is trading at 41 times forward earnings, which is a 48% premium compared to its industry. However, it is projected to grow its earnings per share (EPS) and revenues at more than twice the rate of its peers, and it boasts industry-leading margins in the semiconductor sector. This recent valuation drop offers investors a rare chance to buy NVDA at a more appealing price.

With NVDA’s options premiums in the 99th percentile, selling put options can allow investors to purchase the stock at a significant discount. For instance, selling the September 6th (weekly options) $100 Puts yields a $7.05 premium. This obligates traders to buy NVDA at an effective price of $92.95 if the stock is below $100 at expiration, equating to a valuation of just 36 times forward earnings—a 35% discount from its price a month ago. If NVDA remains above $100 at expiration, the return on cash for this trade exceeds 7.5% in just 30 days.

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