While the American humans use this week to elect the lesser
of two evils, I will use this opportunity to
strangle NVDA for the last time
this year.
Since NVDA is announcing
earnings on November 8th after the market closes, I'll use this opportunity buy
the November 13 calls and also buy the November 12 puts using Fridays closing
price for each at around .35. That's $35 for each option contract because each
contract represents 100 shares ( .35 x 100 shares = $35).
I'll sell these
just before the close on
November 8th.
I do not want hold these through earnings. The idea is to let increasing volatility
and/or price swing in either direction produce an increase in the price of the
options. Holding through earnings may
seem like a good idea because drastic price swings can occur after earnings but
just as there can be a volatility rush before earnings, there is often a
volatility crush after earnings so the gain achieved through a large price swing
can be wiped out by the decreased volatility after the announcement.
In this case I am holding the options for no
more than four or five days so theta or the rate of decline in the value of an option
due to the passage of time is limited. There
nothing worse than buying something that declines in price the minute you buy
it...like..umm...everything, except gold maybe.
Here's a good
reason to use NVDA for a strangle...
Those spikes
represent the increased implied volatility, and then the decrease in volatility
after earning announcement.
You can refer
back to the last NVDA strangle (which resulted in a five-day 70% gain) here for
the set-up and here for the result. I
don't expect those kind of stellar gains but with the added twist of an election
on Tuesday who knows what direction stocks will go. And who cares about direction when you are in a
strangle. We just want something to
happen. So a Romney boost, or an Obama
dive, or a market up-turn due to removing election uncertainty will help our
cause. Of course if volatility drops
after the election and prices flat-line we will get nada or maybe a small
loss.
Strangles used in
this manner are low risk, low reward usually.
So while waiting to see if the self-serving politicians you voted for
will win, a strong market reaction to the election could put this strangle in
the money.