Winning Trade – 900% – Now Repent, Ye Witless Sinners! (NVDA, AES/XEL)

As we move through these Ten Days of Repentance and pray for the Creator’s mercy, we warn our readers that the coming year will not be easy.

As Alan B. Harvard will be discussing later this week, the year 5781 will be fraught with challenges for the entire planet.

Stay tuned for his exegetical take-down in the next issue of Climbing the Wall of Redemption.

And get all your friends to sign on to the blog.

It’s absolutely free.

Before we start, we’ve got cash on the table.

So let’s bank it.

It was our AES/XEL pairing from March 30^th, which saw you sell the XEL October 16^th 65 CALL for $2.15, and buy the AES November 20^th 14 CALL for $2.25.  Total debit on the trade was $0.10.

And today?

The short XEL option goes for $3.20 and the long AES for $4.20.  Buy back the first and sell the second and you walk away with $1.00 on ten cents spent.

That’s a 900% return, friends.

And congratulations to Marco ‘the Bear’, who went in large.

Today’s trade comes from the Great White North, where wily subscriber MT has suggested we look at NVIDIA (NASDAQ:NVDA), the self-described “visual computing” company, as a possible trade candidate.

Ho-ho!

It’s more than just possible, friend.

It’s a deal!

Consider the following –

NKVD NVDA trades with a bloated P/E of 91.80,

Offers a mouse-like dividend yield of 0.13%, and

Is priced at 22x Book (!).

Not great numbers, at all, for a legacy tech outfit.

But we also offer the following insider sales info for those who are curious –

• In the last quarter (through September 16^th) insiders dumped $230 million worth of stock.
• With $100 million coming in just the last 30 days!
• All told, the know-it-alls have parted with 26% of their entire stock stash in the last six months, a number that should pique every trader’s interest.

Now look at the chart –

This is the daily paste-up from January 1^{st –}

1. In addition to the overbought RSI read that was tripped in early September (in red, at bottom), we see
2. RSI now preparing to break below its all-important mid-way waterline (in green),
3. And MACD poised to shortly follow suit.
4. Volume has picked up since the September 2^nd highs (in black), and
5. Price has declined to the lower edge of a six month trendline (in red).

The current pennant formation (in blue) is normally considered a ‘continuation’ pattern.  But whether that means the batflu bull is still in effect, or the more recent decline will proceed apace is not yet known.

Given the rest of the technical picture, however, we’re fairly confident NVDA is just days from a breakdown that could carry as low as $400 before stabilizing.

And the weekly chart only adds gloom to the ruinous flop that we foresee.

See? –

• Parabolic rises of better than 200% (in blue) should never be tolerated, but when they’re mixed with
• A weekly RSI overbought read (in green), well… that only compounds the injury.
• The weekly bearish engulfing pattern (expanded, in black) is a hammer blow that makes surgery all but impossible.

And that’s why we’re urging the following action on NVDA –

A Jew and His Money recommends you consider selling the NVDA September 25^th 470 straddle for $33.85 (31.85/2.00) and buying the NVDA October 16^th 470 straddle for $61.70 (46.15/15.55).  Total debit on the trade is $27.85.

Rationale: the trade is based on an expected decline in NVDA shares over a relatively short period.

Our regular long/short calendar straddle has been modified, however, to give a directional bias to the trade.

With NVDA currently at 500, we’ve selected the 470 strike, with the expectation that by week’s end (September 25^th expiry), NVDA will be very close to that level and the value of the short straddle will thereby be significantly minimized.

Stay tuned for updates throughout the week.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew