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05 December 2016 at 13:43 GMT
Shares of Santa Clara-based semiconductor player Nvidia have been hot this year, rising some 170%. The chipmaker seems to be dominating the graphics space, particularly in video games, virtual reality, and having recently secured a place in self-driving cars.
The short-term pullback from a high of $95.25 to Friday's close of $88.45 could present investors with a good entry. Instead of buying the shares outright, we are going to use a short put spread.
Let's walk through setting this up.
Management and risk description
The downside is limited in a short put spread...
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Source: Dynamic Trend
(Investors can now use the new combination order ticket available as of last Friday on the legacy Saxo Trader (downloadable) for this strategy.)
Underlying price: $88.45
Sell -1 30 December 16 87 Put
Buy 1 30 December 16 85 Put
Net Credit $0.84
Maximum gain: net credit or $0.84
Maximum loss: width of spread minus credit ($2-$0.84) = $1.16
* all calculations are assumed at expiration, the trade makes sense if one collects at least 60% ROR.
Entry: today at the open.
Stop: no physical stop.
Target: shares to trade >$87 at expiration.
Time horizon: 25 days.
— Edited by Michael McKenna
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Non-independent investment research disclaimer applies. Read more