Investing with options: Nvidia - 3 long term scenarios

Execution

• Sell to Open 1 19-Jan-2024 595 Call @ $7.85
• Sell to Open 1 19-Jan-2024 420 Put @ $9.40

Premium and Risk

• Net Premium Received Per Option: $17.55 (credit)
• Total Premium Received: $1,755.00 USD
• Max Risk: Unlimited due to the naked call
• Margin Impact: €2,372.13
• Upper Breakeven Point: $612.55
• Lower Breakeven Point: $402.45 

Rationale

The trader is utilizing a neutral strategy, anticipating NVDA to stay within a specific range until expiration (63 days from now). As this is more of an income strategy, the time frame is a little shorter than the other strategies in this article.

 
Strategy Summary

This strangle strategy reflects a neutral stance on the market, with the goal of profiting from NVDA's stock staying between the breakeven points.
 
If you have the underlying stock, you could view this strategy as a way to catch extra yield on the stock: $1755.- credit received on a capital of $49179.- (based on the current value of the stock * 100 for 1 contract) = 3.57% over a period 63 days. If the price of the stock moves outside the breakeven points, you have the underlying stock to cover these excess moves. Having the underlying stock alters the strategy from undefined to defined risk. Do take into account, that once you're using your stock as cover, this will limit the potential upside of your investment at the upper-strike price of the strangle. On the downside, if you don't have enough cash to cover an assignment of the put, you will have to sell your existing stock to cover that position, possibly resulting in extra loss.

Addendum (20 nov 2023): The strategy has changed (slightly) since its initial publication. The strategy didn't correctly mention the downside risk when using 2 puts rather than 1. This has been corrected. Our apologies for the confusion.

Execution

• Sell to Open: 1x 20-Dec-2024 650 Call @ 55.50
• Buy to Open: 1x 20-Dec-2024 420 Put @43.20

Premium and Risk

• Net Premium Received: 12.60 USD (credit)
• Total Premium Received: 1,260.00 USD
• Max Risk: Unlimited due to selling a call (unless you have the underlying stock, which changes the naked call to a covered one)
• Margin Impact: 3,745.35 EUR (if you have the underlying stock, the margin impact will be much lower)
• Breakeven Point: $662.60 

Rationale

The trader is implementing a collar strategy to hedge a long position in NVDA stock. By selling a call, they receive a premium which partially offsets the cost of the put. This setup is typically used when holding the underlying asset and wanting protection against a downturn while capping the upside potential.

 
Strategy Summary

This collar strategy protects against a significant drop in NVDA's stock price with the purchased put, but also limits the upside gains by selling a call. It's a risk management tactic, trading off profit potential for downside protection. The actual risk and breakeven would depend on the price of the NVDA stock owned by the trader. This strategy suggests a neutral to slightly bullish outlook, willing to forgo some upside for protection.