NVDA Options

[brokrken]

With this huge drop in NVDA share price this morning, I picked up some short term just out of the money call options hoping for a quick snap back recovery tomorrow. What do you guys think; Good or Bad idea?

 

[Dan32]

Probably a good trade. Curious as to what expiration date you bought? I thought about buying a deep in the money LEAP as a trade idea, but didn't since I thought it could be affected if something happens to Bitcoin. Although only about 5% of NVDA's sales are used to mine BTC, these stocks have a way of overreacting. Set up an alert to look at this again if NVDA drops below 190.

 

[OldShooter]

With this huge drop in NVDA share price this morning, I picked up some short term just out of the money call options hoping for a quick snap back recovery tomorrow. What do you guys think; Good or Bad idea?

You might win and you might lose. Gambling is like that.

 

[Totoro]

With a current forward P/E of 40 even after the correction .. good luck with that.

I'd rather put my money on black, much better odds.

 

[brokrken]

Probably a good trade. Curious as to what expiration date you bought? I thought about buying a deep in the money LEAP as a trade idea, but didn't since I thought it could be affected if something happens to Bitcoin. Although only about 5% of NVDA's sales are used to mine BTC, these stocks have a way of overreacting. Set up an alert to look at this again if NVDA drops below 190.

Expiration 12/15. Again, very short term. Just trying to make a few bucks on the bounce, which there is a small one today (as expected), but not big enough to make any real money. I'll watch it the rest of the day and probably unwind it, maybe will wait until tomorrow, but that would be the longest.

 

[Texas Proud]

Expiration 12/15. Again, very short term. Just trying to make a few bucks on the bounce, which there is a small one today (as expected), but not big enough to make any real money. I'll watch it the rest of the day and probably unwind it, maybe will wait until tomorrow, but that would be the longest.

I am actually hoping it goes down 10% or 20% more before it recovers.... I sold off half of my holdings yesterday and would like to get back in at a discount...

 

[brokrken]

I am actually hoping it goes down 10% or 20% more before it recovers.... I sold off half of my holdings yesterday and would like to get back in at a discount...

Texas, I'm in the common for the long haul. Bought it 7 or so years ago for $10. If, as you hope, it goes down another 10-20%, I'll add to my position probably.

 

[brokrken]

Just closed them out. Nice little 26% gain in less than 24 hours. Not bad. I could have done a bit better if I hadn't bought at market yesterday, but instead used a limit. Stupid me didn't look at how small the open interest was before I hit buy. Anyway, nice little experiment.

 

[OldShooter]

Just closed them out. Nice little 26% gain in less than 24 hours. Not bad. I could have done a bit better if I hadn't bought at market yesterday, but instead used a limit. Stupid me didn't look at how small the open interest was before I hit buy. Anyway, nice little experiment.

Congrats on your good luck. May your future coin flips always be as successful.

 

[brokrken]

Congrats on your good luck. May your future coin flips always be as successful.

Thanks. And, while I agree this was a highly speculative trade. I'd like to think it had a bit better odds than a coin flip. As I mentioned, I've owned the common for quite some time, so I've been watching this stock for years. Every time it has a big sell off like yesterday, it nearly always gets some of it back the next day. Could I have been wrong? Sure. But, I wasn't just making a wild ass guess. The trade was based on real observations of the movement of the stock for years.

Will I do it again? Probably not. For sure I'd be wrong next time.

 

[OldShooter]

Thanks. And, while I agree this was a highly speculative trade. I'd like to think it had a bit better odds than a coin flip. ...

Hard to say. Where I come from is this:

The price you bought at was determined by at least hundreds if not thousands of people. It was the net of all their opinions, pro and con. Most of those people are professionals who have far more knowledge of the stock, its behavior, and the market than you will ever have. Some of those "people" are computers who have computed the probability of success at that price including perfect memory of the stock's history of bumps, dips, spikes, doodles, and dives. So, compared to all that, I would say that your decision was at least close to being a wild-ass guess.

(Note that is is not an argument for the Efficient Market Hypothesis. While the EMH is probably a major factor, there are also emotional factors that are part of the price determination. But in the end, the market experts have voted.)

The one non-trivial advantage you do have is the tiny size of your trade. You can take advantage of smaller moves than a professional can. I don't know that this advantage changes the win/lose probability though.

Charles Ellis, in Winning the Losers Game, argues that all the wisdom, expertise, and information that the professionals have basically cancels out and we are left with random walks. (Ellis was on the board at Vanguard, as served on multiple big-name investment committees including chairing the investment committee at Yale. He has also taught graduate-level investment courses at Yale and Harvard.) To me, the random walk explanation is the most plausible one on which to base trading (not investing) decisions. IOW, I don't trade.

But trading will be with us forever, as will casinos and lotteries. Humankind is an optimistic and greedy species of mammal.

 

[brokrken]

To me, the random walk explanation is the most plausible one on which to base trading (not investing) decisions. IOW, I don't trade.

But trading will be with us forever, as will casinos and lotteries. Humankind is an optimistic and greedy species of mammal.

I agree with most of what you say, which is why I, too, typically do not trade. I'm a buy and hold forever type. I'll add to positions on dips occasionally and add a new position from time to time, but rarely sell. In fact, you got me thinking, so I looked back at my account and the last "sale" in this account (before this one) was in 2012!

This one "trade" was just a hunch I had based on some experience with the stock. Maybe it was dumb luck, but I'll take it.

 

[OldShooter]

I agree with most of what you say, which is why I, too, typically do not trade. I'm a buy and hold forever type. I'll add to positions on dips occasionally and add a new position from time to time, but rarely sell. In fact, you got me thinking, so I looked back at my account and the last "sale" in this account (before this one) was in 2012!

This one "trade" was just a hunch I had based on some experience with the stock. Maybe it was dumb luck, but I'll take it.

Absolutely! I used to trade and it is a lot of fun. I remember some really profitable trades, too, while the memory of the losers has long since faded. I don't think there is any reason to criticize someone who understands it for what it is and doesn't risk more that he/she can afford to lose. Some traders can be really lucky and I'll be the first to applaud!

Nassim Taleb, in "Fooled by Randomness" emphasizes the risk when someone has gotten lucky and, from that, concluded that he is a genius. That concept is definitely in my "be sure to remember this" basket.

Taleb, in "The Black Swan" talks about the "Fallacy of Silent Evidence." In trading, the silent evidence is the tales of people who lose and remain quiet. When we win, though, we are quick to boast and by doing that we may mislead others because the negative evidence is not there.

Happy trading!