$NVDA volatility is too low      

$NVDA volatility is too low

As it goes after most earnings, implied volatility implodes leaving the option premiums in tatters.  Even a name like $NVDA goes through the same cycle.  Traders bid up the stock into the earnings last week hoping for a big boost but the crypto-currency cloud drifted over the conference call and rained on what was a nice parade.  Now we have 60 day volatility in the bottom 10 percentile.

Low volatility

The lower volatility is significant but not a big surprise.  What is surprising is that $NVDA was able to muster a $10 intraday move today which is around 2.5% of the underlying price.  That would equate to a 40% intraday volatility.  If one were to look at the implied volatility of 28% in the 60 day cycle it would seem that is cheap based on today’s move.

Now one asks the question can $NVDA keep having those big moves?  Looking at 10 day historical vol the big question is maybe.  If one were able to reduce the cost of any option purchase, buying options would look even better.  If one could take the time decay down to near 0, any long contact buy would be a for sure yes.

Charts by Livevol Pro from Cboe.com

The Volatility Surface

How does one do that, by clever positioning using different terms and strikes?  Yes that is how it is possible to trade $NVDA with a very low cost and low risk of entry.  While $NVDA is not a cheap stock the volatility is cheap in an absolute sense.  Once a trader learns to trade the Volatility Surface as well as the underlying the ability to create better risk reward trades takes shape.

28% implied volatility for $NVDA might seem cheap for today but it is the 60 day hold time that is interesting.  Can we make money sometime during that time frame with reduced risk?  To help traders understand we will offer the Options Made Easy course in September.  5 parts on the how and why of making buy and sell decisions for options using the Volatility surface to help.

We provide an intro to the Vol Surface in our Gold Class.  Click here.

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