On 28 Oct 21, I sold a PUT contract on Nvidia, with details as follow:
Strike Price: $260
Date of Expiration: 3 Dec 21 (35 days contract)
Premium Collected: $19.50 (7.5% returns)
I previously close a PUT contract in 12 days because I thought Nvidia’s share price is going up too high and may have a chance of pullback soon. Read more here:
I Close My Nvidia PUT Option Contract and Made $1405 (5.98%) in 12 days
However, the recent strong earnings from AMD, a fellow semiconductor company that supplies CPU and GPU, have given me the confidence that Nvidia will do well in the upcoming earnings release on 17 Nov 21. Initially, I wanted to sell a Facebook PUT contract instead but the IV at 20% is too low for my liking, which will translate to a lower premium being paid to the option contract seller (me). Nvidia has a high IV at 38% as earnings are yet to be announced.
Read more about why IV is important here:
What Is Implied Volatility (IV) And Why It Matters In Options Trading?
I sold a PUT option on Nvidia at a strike price of $260 because I am bullish (think it will go up) on the stock leading up to the earnings release but it does not mean that I think Nvidia is undervalued. My risk is in holding onto a stock that may be overvalued if I have to buy the stock when the contract is exercised on the expiration date. However, I also have strong faith in the future growth of the company, so I do not mind owning the stock at a slightly higher value. If the run-up to earnings mimics the trend of my previous contract where the share price of Nvidia continues to increase, then I will probably lock in the profits by closing the contract without having to own the shares.
I Made 8.6% Returns In 35 Days By Buying Nvidia Share Option Contract (15 Oct 21)
How PUT Option Works
How Call Option Works
How Does The WHEEL Strategy Works?
Why Options Trading Is Not As Scary As You Think