Here’s how I traded Nvidia $NVDA – March 8, 2024
This is Dan Fitzpatrick with your Chart of the Day. Happy Friday everybody, not so much for people who bought NVIDIA ( NASDAQ: NVDA ) this morning, so I want to go through this.
It was just yesterday, actually into this morning, my biggest position by far was NVIDIA ( NASDAQ: NVDA ) calls. They weren’t short-term calls, they went out 70 days so I guess that would make them May, if I’m not mistaken. I bought these long-dated ones because this stock seemed like it was going up to the moon. I didn’t feel like trading around it trying to find the top, and so I figured, I’d give myself some time so I don’t have to worry about time erosion.
That’s a problem or it’s a challenge with short-term options. If you are buying calls for example, if you are right about the direction you’re making money, and that’s great. But if it’s a very short duration, say a weekly option, where they expire next Friday or something, and the stock moves against you, the option contract doesn’t have enough time to allow the position to get caught up.
In other words, to allow the stock to run its course on the pullback and then continue the prevailing uptrend and help you make money. So you wind up being, ultimately, right about the direction of the stock but you’re losing money because you bought the wrong option. It happens. I invented that mistake, I did that so many times when I was younger. Now I would rather pay more money for time.
What I don’t do is, I don’t allow the time remaining on the option to dictate what my strategy is going to be if the stock starts doing something, in this case, really good. Here’s what I’m talking about, yesterday I’m up a lot, and this morning I’m up a lot more. I see this gap, and if you look and see how this stock trades, here’s a gap, this was, actually, a gap here, it’s gappy. Then it came back but then it’s a gap here, and another gap here, then another gap here.
And so finally, this one this morning, well, you know it’s another gap up to 950.00. I’m thinking, well maybe we’re going to finally get this $1,000.00 print that I’ve been looking for, and that would be a double from the breakout, which wasn’t a hard call to make. This morning when the stock gaps up to 950.00, I’m thinking, okay, at some point this puppy has got to turn around. It has got to give us some kind of a rest, and why not when the stock gets close to $1,000.00?
This is the level where you are going to get so many limit sell of investors saying, okay, well if the stock gets up to $1,000.00 I’ll sell. You will just see a massive wall, a massive ceiling of supply here at $1,000.00. That has nothing to do with the company, it’s just the way stocks trade. And so the stock gets closer to here and you could almost feel the bulls saying, you know what, why don’t we step to the side here and let somebody else handle this crap for a while? And so the stock got really heavy.
If we look at it on an intraday chart, I just use these 4 panels and I will adjust these, this is my first thing in the morning, 1, 5, 15, and then typically an hour just for a frame of reference. Then as the day goes on, I’ll go 15 minutes, 30 minutes, an hour, and then the day. The orange line here is the volume-weighted average price.
This thing came up this morning, and it’s running pretty nicely for the first hour. Then we’re up to 975.00 or so, and then it starts to turn around. One of the things that I noticed was that even as the stock climbed I noticed that the market value, the price, and the bid-ask on my options was not increasing. It wasn’t going down a lot but these things had high deltas, and so you would expect, as the stock climbs higher, the bids to also be climbing higher in the calls, but that wasn’t happening.
It was noticeable, and that is something that I will look at to decide whether I want to take action. I don’t care how long-dated they are. As long as I see a stock moving in my direction and the bid is continuing to climb, that means that traders, new traders, are more than willing to pay a higher price for the options that I have. But when they start backing off, irrespective of what the actual underlying price is doing, then that tells me, all right, well something has changed here.
I started looking closely at how this was going to trade around the volume-weighted average price, though I did give it a little more room. Once it got down to 950.00, that’s when I started selling. I didn’t just dump them all, by the way, I didn’t top-tick this by a lot, and that’s not the point. I wasn’t trying to top-tick it, I was just trying to manage my risk of missing out on good upside.
If you even look back here at how this traded yesterday, you’ll see that it also went up nicely for the first hour of the day, just like this did, and then it tapered off a little bit. Well, if I had sold back then and said, oh, that’s it, I’ve got to get out here. I would have felt really good for about 9 seconds. Then you see the stock just continue to trade sideways for a while.
And then, as you get towards the end of the day, there’s an uptick in buying, another sideways move, not a big deal but it’s a deal, you could see it, and you could see the volume start to tick up. And then the stock gaps up and we have a much nicer move even today. So sitting here just deciding, okay, this is the top, every once in a while you may get that right but I think you will find a lot of times that you wind up missing the last part of a move.
I just find that it’s always better to go ahead and let the stock run its course, and try to sell a little bit on the way up. I did not do that, I was tempted to do that yesterday, like gosh, I’ve really got a pretty big position here, maybe I’ll take a little off going into the close. Then I looked at it, I thought about it, so it’s not like I forgot about it. I just looked at it and went, you know, I think I’m going to let it run but I’ll keep it on a tight leash on Friday, which was today.
So then the stock starts rolling over, falls underneath the volume-weighted average price, and I’m thinking, okay, it’s Friday, I’m looking at the open interest on the weekly options, the call options that all expire today, and I’m thinking, all right, it’s looking to me like this stock is done going up and it’s probably going to fall back quite a bit further, and so then I liquidated. I wasn’t expecting this, I had no idea whether it would do this, but I didn’t care once I got out of the position.
And so now, I’m out of this position, I see this stock as printing a really, really important, it’s called a bearish engulfing pattern. Where the stock actually gapped up above the prior day’s high and ran way above the intraday high. It reversed, did a snap-hook reverse, came back down, and fell below yesterday’s intraday low. And here it is, we’re going to have a crappy closing location right here at 882.00.
I don’t know, maybe it will go lower, maybe it will go higher. But this gives me the sense that this is a complete reversal. Does this mean that NVIDIA ( NASDAQ: NVDA ) is done? No, not at all, but it means that it is done for a while. I seriously doubt whether you are going to see buyers coming back into this and pushing the price higher next week. You get this massive volume, a big flush, but the stock is still really, really extended.
It’s up, even where we sit right now, it’s up about 33-34 percent from the 50-day moving average, and well above the 200-day, like 75-77 percent, so this is still very, very extended. The way it was trading yesterday it didn’t even feel like it was getting into blow-off territory. I wouldn’t say this is a blow-off, we don’t see the volume characteristics for that. Yes, we’re getting an increase in volume, but when you get to blow-off central, you see volume spiking really, really steeply. We are just seeing it pick up a little bit.
I think this was just time to be taking profits. I hope you did, if you didn’t, frankly, I don’t think it’s too late. I’m a long-term believer in NVIDIA ( NASDAQ: NVDA ), but I’m an even more firm believer in price action. And while this is looking really, really nice, I do think that it’s going to rest here a little bit and give us a better chance to get a better entry sometime over the next few weeks.
Oh, and by the way, NVIDIA ( NASDAQ: NVDA ) is a huge part of the SMH ( NASDAQ: SMH ), the semiconductor index. But when I see the whole industry flopping around like this, I see NVIDIA ( NASDAQ: NVDA ) doing that, which tells me that it’s pretty much time for Elvis to leave the building.
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