Nvidia Announces a 10:1 Split

I just got home from a week’s vacation/road trip to Niagara Falls. Even on the road I’m always looking at the market.

I have been watching Nvidia (NVDA) very closely in anticipation of a stock split. But this week I was watching a little closer and listening to financial people because they were announcing their earnings on Wednesday, after the close. I normally don’t get involved in stocks with earnings imminent but Nvidia is such a special stock I decided to get into a position.

Since Nvidia is so expensive I decided to buy an option with GraniteShares 2x Long NVDA Daily ETF (NVDL). After listening to many reports I was convinced Nvidia’s earnings were going to be a beat.

Before I continue, let me write a few things about NVDL. I do not know everything about NVDL. However, I know enough to feel safe using this investment vehicle for very short term investments, like a day, but I don’t have enough time to explain it here in detail, in a post. It would take a full section in Main Street beats Wall Street. I suggest, if you are interested in NVDL, that you do a lot of research on-line. This EFT is not for Grasshoppers! The Fund seeks daily investment results, before fees and expenses, of 2 times (200%) the daily percentage change of the common stock of NVIDIA. There is no guarantee that the Fund will meet its stated objective. The fund should not be expected to provide 2 times the cumulative return of NVDA for periods greater than a day. Having said that, if you’re going to invest in NVDL you must do your homework!

Feeling very good about Nvidia’s earnings I bought 5 contracts of NVDL. With the stock at $43, on Wednesday the 22nd, the day of the earnings, I bought 5 NVDL 5/24/24 $43 Calls for the premium of $3.50, a total of $1750. I did not plan on holding the position for more than a day.

Nvidia blew the earnings out of the water! Not only that but the company also announced a 10:1 stock split. On Thursday the stock was up about $90. About an hour into the trading day on Thursday the premium of my NVDL option was $8.00. When it went up to $8.50 I placed a Stop Loss at $8.00. If it continued up I would continue to make money, if the stock pulled back I would lock in my profit at the $8.00 mark. A little while later the stock pulled back and my NVDL options were sold at $8.00.

5/22/24 – Buy to Open 5 NVDL 5/24/24 $43.00 C @ $3.50

5/23/24 – Sell to Close 5 NVDL 5/24/24 $43.00 C @ $8.00 

Profit $2250

 

I ended up making $4.50 on the option for a $2250 profit. That’s a 128% gain.

The Nvidia 10:1 split is set for Friday,  June 7th. The split will happen after the close and Nvidia will start trading at the split adjusted price on Monday morning, June 10th. So far I bought 1 NVDA Call. I bought 1 NVDA 6/24/24 $1000.00 C @ $79.00.

Buy to Open 1 NVDA 6/24/24 $1000.00 C @ $79.00

I plan on holding this position through the split. If I do, after the split, I’ll end up owning 10 $100 Calls. My plan is to sell the 10 Calls on Monday, June 10th. I think the stock will pop after the close on the 7th and during market hours on the 10th. The stock will look very inviting at $100 per share to many investors who could not afford the stock at $1000 per share.

I might buy another option of Nvidia before the split and also sell that one on Monday the 10th after the split.

I will also buy options of Nvidia after the split. I’ll watch to see how it moves. I might buy these in the middle of that week. With the pre-split options I will have the Expiration Date of the Friday after the split, and the options I buy after the split I’ll have an Expiration Date 3 or 4 months out, September or October.

I try to show what trades I make and teach how options work; I do not give investment advice. Having said that, I believe this will be a great investment opportunity. A lot different than the recent Walmart split. To me, this is reminiscent of my first big stock split opportunity. I’m talking about when Amazon did a 3:1 split on January 5, 1999. On January 4, 1999 I bought 4 AMZN options and sold them the day of the split, which was the 5th. Without getting into all the particulars of the trade I ended up with 12 Calls. The day of the split the stock took a big jump and my $10,507 investment went up to $31,341 for a 1 day profit of $20,833. This was my first big trade. I feel Nvidia can do something similar.

Be very careful! Especially if you invest in NVDL. I would rather see you do something with NVDA. Also, a stock will normally pop after the split announcement, which NVDA did. But many times the stock will pull back with profit taking. This can happen this week or early next week. I’ll be watching for this pull back to buy another pre-split option. When to buy in will take a little guesswork.

I’m very excited about this split with the hottest stock in the world. It forced me to look at all my old records from the 90’s when stock splits were happening everyday. When looking back at my records it’s clear that the tech stocks reacted much better to stock splits than other sectors. And NVDA is the biggest tech stock of them all.

We have 2 weeks before the split. Do some homework and send me any questions you might have about my stock split strategy.

 

Successful trading,

Steve

The Options Coach