NVIDIA Stock (NASDAQ;NVDA)
Analysis of the stock market is becoming increasingly difficult. It appears to be unhealthy that a small number of stocks are driving the market higher.
Consider the following: David Kostin, the chief U.S. equity strategist at Goldman Sachs, recently told clients that the seven largest constituents in the S&P 500 index have increased by 53% in 2023 while the other 493 stocks have decreased by 0%.
Despite the fact that it frequently makes its presence known, the market currently appears to have more in common with a black hole than it does with the Oracle of Delphi. In order to overcome the lack of transparency, I sought guidance from a higher power—specifically, from something that has artificial intelligence, which is something that has excited the entire financial world.
I asked ChatGPT to write my column, despite the fact that I felt this was unethical and equivalent to betraying my readers and editors. Surprisingly, the end result was satisfying, albeit in a manner that was not anticipated.
“As an AI language model,” ChatGPT explained to me, “I am able to generate text based on prompts and provide information on a variety of subjects, including finance and investing.” However, I am unable to write specific columns for Barron’s or any other publication because I do not have access to real-time data nor do I have the ability to write specific columns. Steven M. Sears, a financial journalist, and author, is responsible for writing the Striking Price column that appears in Barron’s. It is best to refer to his articles directly for the Striking Price column in Barron’s because his knowledge and perspectives are entirely unique; these can be found in his articles.
I was not deterred, so I asked ChatGPT additional questions; however, I was never provided with any genuine insights.
It was unable to advise me on whether or not the stock market was a good time to buy or sell. It did state that stock prices do not continue to rise indefinitely, despite the fact that they experience periods of volatility as well as periods of decline or stagnation. Another lengthy homily was generated in response to the question of whether or not it was typical for only a few stocks to advance while the rest of the market remained flat. The same thing occurred when I inquired about whether it was better to buy or sell options on ChatGPT.
After question after question, the responses that were provided were the kind that you would expect to hear from someone who had mastered the ability to speak without actually saying very much. At the conclusion of my failed attempt to engage in intellectual discourse with ChatGPT, I found that I was left with the impression that the gap between the hype surrounding artificial intelligence (AI) and the reality of AI is significantly wider than the majority of people probably realized at the time.
And while last week we focused on a way to bullishly trade Nvidia shares (NASDAQ:NVDA), we now find ourselves wondering if it is only a matter of time before investors start asking more difficult questions about AI. This comes after we spent the previous week focusing on a way to bullishly trade Nvidia shares.
Bear spreads are an option for investors who want to protect themselves from potential losses. Nvidia stock has gained approximately 27% since the end of May and 165% so far this year. The strategy, which consists of buying a put option and selling another option with a lower strike price but a similar expiration, is intended to produce an increase in value when stock prices go down. It is used in situations in which a stock’s options are expensive and have high implied volatility, and the stock itself is unusually expensive. (The owner of a put option has the right to sell the underlying asset at a predetermined price and at a certain time.)
At the current price of $386.54, investors who believe that AI-related stock prices won’t continue their upward parabolic trend might want to consider buying the August $375 put and selling the August $320 put. Nvidia is currently trading at $386.54. Recent pricing for the spread came in at approximately $15.20.
At the time of expiration in August, the bear spread has the potential to generate a maximum profit of $55 if the stock price is at or below $320. The trade is going to be unsuccessful, of course, if the stock keeps climbing higher, or even if it doesn’t drop below $375 by the time it expires.
Playing the bear side of last week’s idea might be considered unimaginative by some, but there doesn’t appear to be much of a reward for imagination in the markets as of late.
Featured Image: Megapixl
