Like Nvidia but Don't Want to Buy Its Stock? Try This Options Strategy
"The call spread" strategy is a favorite of many professional traders because the potential return can be huge, and the capital required for the strategy is less than simply buying a call option.
Last week, Nvidia released a shocking earnings forecast that some believe heralds a new industrial revolution.
In addition to buying Nvidia stock, there are also some strategies for betting on Nvidia using options.
How to Bet on Nvidia?
Aggressive investors who are bullish on Nvidia's stock price can consider a "call spread," which involves buying one call option and selling another call option to profit from a rise in the stock price.
This strategy is a favorite of many professional traders because the potential returns can be huge, and the capital required for this strategy is less than simply buying a call option.
In the case of Nvidia's stock price of $401.11, a call option with a strike price of $415 that expires in July can be purchased for about $24, and a call option with a strike price of $475 that expires in July can be sold for about $8.
The spread is $16. If Nvidia's stock price reaches $475 at expiration, the maximum profit from the spread is $60.
The potential returns are tempting, but this strategy is also full of uncertainty, in addition to extreme risks. For example, after a period of time, almost everyone who wants to buy stocks has bought them, and there is almost no more money to push up the stock price.
If Nvidia's stock price falls below $415, this trade will fail. To break even, the stock needs to rise to at least $431.
