Home > Markets > Options > likelihood after nvda reaching 325$ or beyond Jan 2019

likelihood after nvda reaching 325$ or beyond Jan 2019

  1. In the past I bought ATM Call costing 2000$ for nvda around 100$. It nicely returned about 11000% pct after holding for about a year. But I could have maximized even far more, I realized because at some point the delta reached 0.99 and since then It has been rizing about the same speed as 200 counts of NVDA stock.

    Well I was not a big fan of OTM calls but then through recent adv. trading book, I could have possibly started off with DEEP OTM calls with delta < 0.1 and that can increased up to 1.0 after DEEP ITM.

    Well since DEEP OTM < 0.1 delta is significantly cheaper and initially grows much slower compared to stock, I bought 8 calls vs. 2 calls. Now multiplier of 8 X 0.1 delta, I presumed it is likely to simulate the call with delta 0.8 which is already DEEP ITM.

    Once if NVDA goes sufficiently go up beyond 325 then effective delta will go to stratosphere I think. If single delta approaches 0.99 the delta increase by 990% compared to ATM in which the delta can at most increase by 100%.

    The only question is whether NVDA will do a winning streak like last few years. I am shooting to sell around 360$ range if it goes there before Jan 2019.
     
  2. yes
     
  3. A forward PE of 53 for a chip company is pretty lofty imo.... they'll need to show significant top-line growth to go much higher. $360 in 11 months is not happenin'.
     
  4. For the moment the up trend of NVDIA is intact - the p/e is lofty but they are consistently beating earnings estimates by a very wide margin. Last quarter the expectations were high but they were crushed by+50% - revenue (near 50%+), income (near trebled) and cash flow (almost treble) have shown an incredible move between 2016 and 2017. The company has little to no debt. Its much better than a Micron or AMD in this respect and those have also shot up over the past couple of years. If we take this into account the p/e multiple will be much lower probably in the (high) twenties.

    NVDIA's business is in the sweet spot being at once relevant to the internet of things, blockchain (mining is done with graphics chips), driverless cars (again graphics chips essential-see deal with Mercedes and Uber), virtual reality and all its variants and so forth. They invested well ahead of the curves in these areas already a few years ago and the real harvesting is only just starting. Good news will keep rolling and though the stock would be vulnerable to any results that are short of crushing expectations 2018 wont be the year that they fail in that.

    The market is also far more optimistic about NVDA - compare 2.8% short of float to the 5% for Micron or even 20% for AMD. Analysts are quoting 240 to 270 as estimates and this is reflected in the options (a truer measure than opinion as someone is actually paying for the privilege of his opinions). The ATM call for JAN19 38$. So adding that to the strike you see that the options market expects NVDA to be around 270$ by years end else the market is mispricing. The fact that this coherent with high end analysts estimates makes sense to me.

    Historically the stock quadrupled in 2016 and doubled in 2017 of course from 30$ to 120$ is 90 bucks and the climb in 2017 was actually also around 100$. From a technical analysis perspective the stock looks safe enough. It tends to have quieter periods at the beginning of the year and making faster moves towards the end. If we presume another 100$ move we get to 320$ for next year. Again the options market is wary because the JAN19 320 call is quoted at 12.55$. The JAN20 calls are not that much more expensive showing that the sky isnt quite the limit but it does seem the whole market is bullish.

    NVDA is vulnerable to a couple of things besides a major general market downturn which is sure to affect it. One is that the rampup of everything they are doing hits a glitch somewhere - then customers have to be disappointed and things can go sour quickly. Secondly they need to keep innovating or they could be leap-frogged or have the issue that their next invention just isnt quite so much greater than the original ones that justified the stock move. The Chinese will have their eye on them to do such a thing as would the Koreans. With more stuff on the table there is also more risks of different things starting to go haywire or a major scandal hitting them like it even hit Intel.

    So who is right the market or Vanzandt? (Just kidding only time will tell). My own view is that the momentum is such that its unwise to bet against NVDA and the risks they have are manageable. I am guessing a 320-330$ price this time next year and I am already long the JAN19 215$ calls since early December. If I had to get in now I would buy the 260$ calls at 25$, I wouldnt hold the whole year but look at the situation before December. In my opinion this is safer than the deep OTM JAN19 330 calls. They sell for only 11$ right now but say the stock goes to 300$ by early December the 330 calls would lose half their value whereas the 260 calls would have near doubled their value. Even if the stock rose to 330$ by December the JAN19 330 calls would be worth only 15$ whereas the JAN19 260's would have trebled so even allowing for the fact you could buy more JAN19 330 calls you would be making less money. BTW none of these calls are delta <0.1 - the 330 ones are 0.24 which is the last option I see quoted with my limited software.

    Sorry for the long reply - I have been long NVDA since April 2016 and hence have had to look carefully at them several times over. Cutting your losses is easier than letting your winners run sometimes.
     
  5. Thats a great post. And if one knows their stocks and has done extensive homework as it appears you have... thats the sign of a very smart investor. I'll admit I don't follow the intricacies of the chip sector. Thats some phd physics stuff and way beyond me. My post merely reflects the reticence of a "Cramer Fave" that has tripled in no time and carry's a high multiple in comparison to the rest of the sector. But I do realize that even within the sector, one is not comparing apples to apples when it comes to chips.

    Regarding using the options to gauge forward price... and this just generic... but for every $50 call.... there's a corresponding $50 put. So I'm not sure that is the best way to give your research an "amen" if you will.
    All that being said...I do think $360 is a reach but who knows.
    Either way, good luck Jules (and GG). Sounds good.
     
  6. As a side note, how does one learn this stuff you are talking about? Is there a good book out there I can read on this? This looks very technical. I read a book on options. It was useful, but basic (how a call/put works, what a covered call is, etc.). The stuff you are talking about here is advanced. It looks very practical. But I have no idea where to start with this stuff. I'm good at math, but I'd have no way to distinguish a diamond from cut glass in terms of buying a book on Amazon on this topic.
     
  7. Yes, I do appreciate for lot work and input into analyze like this.
    I do work in tech industry although not directly involved in Nvidia, but have been closely following for years and can do on technicals (not investing technical but IT side) on why I am bullish. Well, first of all, I am normally pessimist and tend to look at what could go wrong initially but it can be a blessing a lot of time. But on Nvidia, I dont see much trouble ahead but see a lot of positives on upcoming years. Second disclaimer: the future can not be predicted with 100% so there is always an air of uncertainty no matter how one can predict.

    Saying that here is why I do think Nvidia is bull run:
    On AI and GPU graphics side, Intel has been trying to unseat Nvidia with their Nirvana architecture for last few months? may be but it looks like it is not real significant threat: that is because Nvidia's years of technical expertise on graphics but Intel has very limited experience in that. Intel is formidable in terms of cash and mainstream CPU but not in GPU. Hardly anyone has heard of Nirvana although in many aspects it seems to be beating Nvidia's GPU in AI processing. But performance is only one things, accessibility and ecosystem (wide range of brand products and army of developers, ease of development) is huge thing and Nvidia is way ahead in this aspect. Recent years' CUDA programming software dev kit has made even entry level developers and software engineers be able to easily setup development environment and start building application. Intel? Not even close.

    AMD is formidable opponent, but still always one or two step behind and AMD is currently cash strapped. Less cash translates to less money for research and development effort and lesser performing product. Going back to ecosystem, AMD GPU programming still not as easily accessible and known as Nvidia's. Just searching on Amazon's for AMD GPU programming book reveals nothing but for nvidia there are at least dozen books have already been published and being sold already on Nvidia technology. It is a big thing.

    Google has also made what is TPC, tensor processing cluster that also beats Nvidia in terms of performance in AI processing but it is also mostly being used in-house and has not really made lot of waves. Plus, aside from ad business, Google's tech products rarely succeed and even succeed rarely bring significant revenue and still ad brings in 90% of Google's revenue. So I dont think Google will be catching on this side on Nvidia.

    When looking at recent quarterly report most or all of the revenue from their BU is on increasing side. It is rare for the company to be growing in all of its business segment.

    With that, at least for now I dont see any serious threats and competitors to Nvidia's main business just have to wait and watch to see what happens.
     
  8. Before going to options, I have read "Options made easy" book which costs 15$ only from ebay and after 3months started trading, after 2 -3 years, I got certain amount of practical experience. Now during me free time, I am reading "Volatility trading ..." (cant remember the whole name but if you insist can post it here later) to enhance my knowledge and yes, I picked some very good hints and ideas from this book to maximize gain further.
     
  9. actually it is not as compilicated as it seem. now you have the basics firm, when you start reading into greeks and you said you are good at math, it should all make sense very fast.
     
  10. @ggelitetrader000 I can concur with what you say - I work on regulatory issues related to the semi-conductor industry and know the sector for that reason. NVDIA is a hard act to follow and they are well managed - noone is ever invulnerable and certainly AMD is excellent technically its just from a financial perspective NVIDIA is so much more stable.
     
  11. Keep in mind that Delta essentially is the markets consensus of the percentage chance that the price will exceed that point at expiration (absent a couple second order effects that would take some time to cover). So if the Delta on your Jan 19 $325 call is .05, it means the market is giving it a 5% chance that the price will be over $325. If you think the percentage is different, then you're making a bet that the market consensus is incorrect, and some of the expertise in this thread may very well be able to make that kind of determination. But hopefully it's helpful to be able to put an actual percentage number on the market consensus rather than thinking of it in the abstract.
     
  12. i think AMD is cursed it needs its prince to get rid of its spell.
     
  13. Thanks. I put it on my buy list.
     
  14. @TrustyJules and @ggelitetrader000 both of you have good and solid views on Nvidia. There is however one aspect one should be careful about. The expected ramp-up of self-driving cars, needing a lot of camera's, image recognition software and processing power. Such a ramp-up will not go as fast as the ramp-up of a new consumer goods. Innovation ramp-ups in the automotive sector tend to be spread out over a rather long time, sometimes up to a decade. Automotive related innovations are often initially overhyped. And thus will the positive impact on Nvidia's revenue stream be limited during that initial decade, in my view.
     
  15. @HobbyTrading I would agree on the hype. Fortunately there is also an increasing amount of graphics chips required in cars as is. Tesla led the way there with their gigantic screens inside the car. Then various assisted driving aspects come into play. NVDIA is in there and its a market that wasnt there before so its really a good growth driver away from the saturated traditional market.
     
  16. That is definitely a worrying point. I will probably hold on to nvidia only for this year and probably sell it. But there has been always been a gravity defying companies like msft, goog, amz for years. If only nvidia is like 'em.
     
  17. I agree with you that the automotive market size will increase. And the benefit of that market is: once you're in, you're in it for the long haul. Unless you make a very big mess of your business and screw it up completely (which I don't expect from a company like Nvidia). It is only that the ramp up rate is always very slow in automotive, compared to consumer applications. Which is mostly overlooked by the press and financial analysts.
     
  18. what do you think of this serious article?
    https://www.fool.com/investing/2018/02/01/nvidia-and-amd-are-losing-gamers-to-cryptocurrency.aspx

    It says crypto people are gouging the price and angering gamers. Now gamers might flee to xbox or something else. That is bad for both nvidia and amd as revenue from crypto is unstable whereas gamers revenue is much larger and established.

    There is a mentioning of supply constraint of nvidia and amd hardware manufacturers at taiwan and china where the chip manufacturing happens because they got bogged down.
     
  19. First of all: it is not uncommon in the chip industry that a period of shortage of certain types of chips occur. It takes three months to manufacture chips, from start to end, and production planning often needs to be done about one year before actual chip delivery is going to take place. Mistakes in market forecasts can happen and result in temporary shortages. I don't know whether NVIDIA and AMD use their own manufacturing facilities for these GPU's, or that they outsource a lot of it to TSMC. Anyway, capacity planning at these factories need to be taken into account (which in some cases mean that a market forecast must be given 1 ~ 2 years ahead, if additional investments in equipment are needed). In the case of GPUs does the story get more complicated as these chips are not sold as chips, but mounted on a printed circuit board. This is all outsourced by NVIDIA and AMD. Capacity constraints at those manufacturers can amplify a temporary shortage in assembled boards. Hopefully now you understand why period of shortages do occur in the chips industry.

    What surprises me is that both NVIDIA and AMD blame the crypto-currency mining customers for the shortage. Even though that market is so much smaller than the game console market. 3% for crypto related business, 59% for gaming related business. Really? They don't have 3% production capacity margin available? It sounds to me that the crypto market is an easy scapegoat to put the blame on.
     
  20. yes but you may account that crypto-s buying by multiples. one rig has 4-8 gpu-s. Plus how do you count the person is buying for crypto or game. No way to know. Only clear thing is yes severe shortage and price gouging. ouch.
     
  21. I don't care much how many GPUs a miner uses compared to what a gamer uses. For NVIDIA is the mining market 3% and the gamer market 59%. Even if they misjudged the forecast for mining by a factor three that would mean that they had counted on 1% of turnover from mining. A lousy two percent of their turnover in mismatch. They really run such a tight manufacturing that they can't handle such a small forecast mistake? That's why I think mining is used as a scapegoat and the delivery situation will normalise in the coming few months.
     
  22. The article makes the usual mistake of observing a correlation and then drawing the conclusion that there is cause and effect at play. The chipmakers are just churning out stuff like there is no tomorrow, all of them are stretched regarding capacity. The equipment makers have 2 year waiting lists for delivery and more and more things have chips built into them. Nary a product doesnt have some Internet of Things or graphic module in it these days. As someone else outlined above ramp-up for chipmakers isnt that easy when you get to full capacity of existing sites. Its a brutal business where you can billions up or down quite easily, there is a shortage - gamers will moan as will other people. The dogs bark but the caravan moves on - really nothing extraordinary here.
     
  23. ok nvda is experiencing sharp drop today and also last few days, however not to panic, as I can see last december was experiencing even bigger correction, it is just matter of time, when to end the put insurance that is doing its job now.
    perhaps hold the put for a week or 2-3 weeks and sell it back? I'd rather to make some gain while it will almost certainly eventually climb back to make up for the lost time.

    Not sure what the correction now taking place perhaps it is due to 1. profit taking 2. crypto downfall effect (I know it is irrational in the sense the crpyto is only minor percentage of nvda revenue but again market is irrational) or could be overall market correction.

    Well today, call i am holding is down sharply -3.7k$ (at the recent height the gain was as much as +105% but toda only 30% gain) and put has protected about its 2.7k$ with net downage of about -1k. Could have been much worse if it was naked.
     
  24. Just another public service announcement on what all those mysterious financial terms mean....NVDA's beta is 1.4 Today the S&P 500 went down 3.8%. With a beta of 1.4, you would expect NVDA to fall by 1.4*3.8=5.4% It actually fell 8.5%, so about 3% of the fall was due to idiosyncratic reasons related to the stock itself, the rest was simply what you would expect based on it's beta and today's market movement.
     
  25. Today NVDA dropped more than the industry sector (e.g. SMH, SOXX). However, if you look to the last month of trading it performs in line with the semiconductor industry. The light blue line is NVDA, the other two lines are SOXX and SMH.
    yahoo.png
     
  26. with such a fast ascent to a sky i think there are sudden sharp drops are expected. I'd agree it aint for faint hearted.
     
  27. it recovered soem of the gains lost during last few days, few minutes after earning, it was down ~-%5, ok i thought it should be about few weeks to go back up, well i was wrong, it was back up +11% then +7% later day before the next opening bell.