The magnitude of Nvidia’s run is simply mind boggling, with the stock adding $1 trillion in market value in about two months. Trying to short this parabolic stock is what we used to call in the trading pits of Chicago, a “widowmaker.” However, I believe that once Nvidia (NVDA) hits $1,000 it might actually be due to take a breather. I want to own NVDA put options to be able to participate in a slight pullback. Nvidia is currently trading around $955 a share with a $2.39 trillion market cap as it climbs the ladder of largest companies in the world, leapfrogging names like Google-parent Alphabet, Amazon, and Meta Platforms (Facebook). The stock is within striking distance of overtaking Apple at $2.61 trillion and zeroing in on Microsoft, which is now just above $3 trillion. NVDA YTD mountain Nvidia in 2024 As I have embraced the AI-fueled rally since last November, implementing a hedge or some form of downside protection may seem senseless by some investors, but could be strategic if the music stops (or takes a pause) on the artificial intelligence party. I remain cautiously optimistic on the broader market but, markets are overextended up here. Microsoft attempted to illuminate the steep costs associated with AI services back on its earnings conference call in January, but that type of headwind for Microsoft seemingly has galvanized the need for more and more chips, pushing Nvidia shares even higher. Overbought territory Typically, an investor will buy a put if they think a stock is overbought or are concerned it will fall. With a relative strength index (RSI) level of 86, one could claim that NVDA is certainly in overbought territory. That being said, Nvidia was trading at the same RSI level of 86 in early February while trading at $693, nearly $300 ago. Downside Risk Mitigation Trade Normally I would approach a hedge or a short-term bearish view by utilizing a put spread. Meaning, I would be buying the higher strike put and then selling a lower strike put to…
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