Nvidia's “capital protected” options strategy and trend line trading guide under stock price fluctuations

Recently, Nvidia's stock price has suffered a severe drop, leaving many investors in a short-term duvet situation. How to turn passivity into initiative and use smart trading strategies to “protect capital” or even increase profits? This article focuses on two major strategies: covered call options trading and trend line trading techniques to help you cope with market fluctuations.

I. Covered Call Strategy: Nvidia's “Capital Protection” Strategy Amid Stock Price Fluctuations

Faced with Nvidia's share price falling below the purchase cost, adopting a covered call strategy is a wise choice.

The specific operations are as follows:

1. Strategic core:Sell a call option above the current price to lock in premium income early.

2. Case analysis:Let's say investors buy Nvidia shares (100 shares) for $140, and the current market price falls to $118.11. By selling call options that expire on July 4 and have an exercise price of $140 (note, 1 option does not correspond to 1 share, but 100 shares), you can immediately obtain a premium of $49 to reduce losses on your position and provide immediate cash flow.

How does this strategy make money:

The key to this investor's strategy to make money is the actual performance of the stock price and the state of the option when it expires:

1. The stock price does not exceed the exercise price: If Nvidia's stock price remains below $140 on July 4, the options will become worthless. This investor can keep the shares while retaining the royalties collected. His final benefit is: receiving the royalties of 49 US dollars (before fees).

2. Stock price increase:If the stock price rises but does not exceed the exercise price, the option will become worthless. The investor can still keep the stock, and the market value of the stock increases. Coupled with the premium income, he may generally be profitable. His final benefit is: receiving a premium of 49 US dollars (before fees).

3. The stock price exceeds the exercise price: If the stock price rises above $140, the option is likely to be exercised, and the investor needs to sell the stock at the exercise price. Under such circumstances, the investor will lose the benefits of the continuing rise in stock prices, but the loss has already been partially covered by the premium income. In the end, the investor successfully secured capital at a cost price of 140 US dollars/share, and also collected the royalties.

So what are the potential risks:

1. Not suitable for investors who do not hold the underlying asset:If you don't hold the underlying asset, you need to buy it at the current market price and sell it to the buyer of the option at a lower execution price. This difference (market price - execution price) multiplied by the number of futures contracts is the loss you may face. If the price rises a lot, this difference will be huge, leading to huge losses.

2. If Nvidia increases significantly by more than 140 US dollars/share, it will lose more than 140 US dollars/share of increase revenue;

For quality companies like Nvidia, never sell excessive amounts of call options; otherwise, they can easily be knocked out and cause losses.

II. Trend Line Trading: Capturing Nvidia's Short-Term Volatility Opportunities

The more people walking, it also became a path. Markets are made up of people, and technical analysis predicts collective behavior through historical price patterns. When many traders focus on the same indicator, such as the five-day line, its signals may trigger collective action, form self-fulfilling predictions, and drive price changes.

The five-day line, as a well-known trend indicator in the market, has a significant influence on market dynamics due to its widespread recognition.

Use trend lines to trade:

The trend line trading method, simply put, is trading according to the general direction of the price of a stock or financial product.

The high point and the low point on the price chart are connected. The upward trend line is connected from the low point to the low point, indicating that buyers have an advantage and are suitable for buying when the price pulls back near the trend line;

The downtrend line connects to the high point, showing that sellers are strong and can consider selling when the price rebounds to the trend line. If the price breaks through the trend line, it may indicate a trend reversal: the upward trend line is broken, which is a signal to sell;

The downtrend line has been broken, which is a buy signal.

Since technical analysis relies more on a psychological level, in technical analysis, short-term trends generally only have the best trading effect the first time they touch the trend line, and the second time the trend line is weaker, and the effect will be better. As we can see, the current support level is the 30-day EMA (dark blue line, third line), and the resistance level is the 20-day line (purple line, fourth line, slowest).

Then we can look for some indicators that have common market perceptions and trade on Nvidia in order to obtain some short-term opportunities.

$NVIDIA (NVDA.US)$

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