Hey everyone,
Recently $NVDA has been making the rounds on social media and stock screeners. Currently there is a lot of Alpha present within the chipset manufacturer. This post serves to illuminate some of that Alpha so we can add it to our portfolios.
Update 6 months later:
So, since the publication of this post in June of 2021 NVDA has almost tripled in value. After ballooning up in price in q3 of 2021 NVDA decided to perform a stock split and then the price continued upwards until mid December 2021.
I hope you guys got a chance to jump on the NVDA train.
Best,
Chillz
Thesis: Generational Marketing and Demand.
The concept of ‘Generational Marketing’ is when a business seeks to have several generations within a family use their product or service. The biggest example of this tactic is the Disney corporation ($DIS). Disney over the past 20 years has strived to invoke nostalgia among parents who grew up using the Disney line of products (movies, theme parks, merchandise).
Disney sells happiness, $NVDA sells chipsets. Over the past 10 years $NVDA has provided the best possible product for what was once a niche audience, graphics cards for gamers. These gamers have grown up and want to introduce their children to their favorite childhood pastime. This cycle will continue so long as the demand for higher fidelity and chipsets continues.
“Gamers” follow brand recognition heavily and are willing to spend excess to get what they want.
Further, $NVDA is known within the gaming community as the de-facto king of graphics card manufacturers. As a result of this positive brand recognition $NVDA sees massive demand for their newer products. This demand is further exasperated with the advent of cryptocurrency mining, which uses the powerful cards.
The market has vastly underestimated the effect that this brand recognition and ‘Generational Marketing’ has upon the asset price. As a result there is Alpha present in $NVDA on shares.
Action:
I recommend taking a long position on $NVDA and selling puts to hedge your downside. The graphics cards market is known for its swings in demand with the advent of crypto mining. By selling $PUTS on this asset you are generating additional income you can reinvest into $NVDA.
NVDA has posted increasing earnings that reflect its company growth.
Currently $NVDA is trading for around $753.4 a share on a breakout above its normal mean. We should see a pullback sometime in the coming weeks and that is when I would take a position in size allotments of 100 shares (100 shares = $75,340 currently).
The reason behind this is because currently the IV on $NVDA is higher then normal and you can ‘double-dip’ from the subsequent upwards trend of the stock and sold puts. Currently for every 100 shares of $NVDA you own you can gain $905 every 29 days at 33% IV. This further secures your downside by locking in a sell at $695 a share.
Pretty good IV on this stock right now.
Here is the option statistics for the day.
Conclusion:
By strategically entering into $NVDA we can not only take a position in a really good stock but we can also secure our downside and gain premium at the same time. Its a great opportunity for someone with a little extra cash who wants to capitalize on the ever expanding graphics card market.
Best of Luck!
