Nvidia has been leading the AI-driven market rally for the past 18 months. Its GPUs are essential for AI computation. Investors are eager to see when these investments will turn into substantial revenue. NVDA’s earnings are expected after the market closes on Wednesday, and many are curious to see if the demand for AI-related hardware remains strong.
For long-term investors worried about a possible drop in earnings, using options to protect their investment could be a good idea. Nvidia has been trading in a narrow range between $124 and $130, indicating a potential breakout or breakdown after the earnings report. The market is uncertain and eagerly awaiting the earnings results.
Nvidia’s valuation has been boosted by its leadership in AI, which has created high expectations for future growth. Any deviation from these expectations could lead to a significant change in the stock’s rating. To hedge against potential losses, consider using a “put vertical spread” with the September 20 expiration date: Buy the $125 put at $7.55 and Sell the $110 put at $2.56. This strategy offers protection against a 14% drop in Nvidia’s stock price while limiting risk to just 4% of the position.
If Nvidia reports strong earnings, the upside potential is limited by the cost of the put spread. However, if the stock drops significantly due to a disappointing outlook, this strategy can help minimize losses by potentially returning double the amount that was risked.
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