Safeguarding Nvidia Stock Amid Earnings with Unusually Active Options

Nvidia Stock

As Nvidia (NASDAQ:NVDA) prepares to unveil its Q4 2024 earnings on February 21, investors are considering protective measures to shield their positions amidst potential market fluctuations. With Nvidia’s remarkable ascent over the past year, up by an impressive 221%, prudence suggests protecting against downside risks, particularly in anticipation of significant earnings announcements.

One approach to mitigate risk is the protective put strategy, particularly relevant for long-term investors seeking to safeguard their gains. By purchasing put options with strike prices out of the money, investors can limit potential losses while retaining ownership of their Nvidia shares. Considering Nvidia’s upcoming earnings release, protective puts expiring in March provide a viable hedge against adverse market movements.

Alternatively, options strategist Christopher Jacobson’s collar strategy offers a comprehensive approach to protect Nvidia’s profits. This involves selling out-of-the-money call options and simultaneously purchasing out-of-the-money put options. The premium income generated from selling calls offsets the cost of buying puts, effectively creating a cost-effective insurance policy against downside risks.

For instance, selling the March 22 $820 call and purchasing the March 15 $690 put allows investors to cap their upside at 11% while limiting downside exposure to 7%. In the event of Nvidia underperforming expectations, this strategy provides a safety net against potential losses.

While the likelihood of Nvidia disappointing remains uncertain, prudent investors recognize the value of preparedness. By implementing protective options strategies, investors can navigate market volatility with confidence, safeguarding their Nvidia holdings against unexpected downturns and preserving their investment portfolios.

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