Nvidia and Alphabet bull put spreads offer defined risk-reward tradeoffs
First the stock scanner:
Which produces these results:
The two companies we're going to look at that meet our criteria are Nvidia NVDA and Alphabet GOOGL.
Nvidia Bull Put Spread
A bull put spread is a defined risk option strategy that profits if the stock closes above the short strike at expiry.
To execute a bull put spread an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.
This bull put spread comes from the vertical spread screener on the NVDA page.
This bull put spread trade involves selling the May expiry $190 strike put and buying the $185 strike put.
Selling this spread results in a credit of around $0.88 or $88 per contract. That is also the maximum possible gain on the trade. The maximum potential loss can be calculated by taking the spread width, less the premium received and multiplying by 100. That give us:
5 - 0.88 x 100 = $412.
If we take the maximum gain divided by the maximum loss, we see the trade has a return potential of 21.36%.
The loss probability is 23.0%, although this is just an estimate.
our website Technical Opinion
The our website Technical Opinion rating is a 56% Buy with a Strengthening short term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
Relative Strength is above 70%. The market is in overbought territory. Watch for a potential trend reversal.
Alphabet Bull Put Spread
For Alphabet, let's also look at the Bull Put Spread results for May.
Let's use the first line item as an example. This bull put spread trade involves selling the May expiry $317.50 strike put and buying the $310 strike put.
Selling this spread results in a credit of around $1.25 or $125 per contract. That is also the maximum possible gain on the trade. The maximum potential loss can be calculated by taking the spread width, less the premium received and multiplying by 100. That give us:
7.50 - 1.25 x 100 = $625.
If we take the maximum gain divided by the maximum loss, we see the trade has a return potential of 20.00%.
The loss probability is 24.6%, although this is just an estimate.
our website Technical Opinion
The our website Technical Opinion rating is a 56% Buy with a Weakest short term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
Relative Strength just crossed below 70%. The market has dropped from overbought territory. Beware of a potential mean reversion.
Conclusion
There you have two bullish trade ideas on two different stocks. Remember to always manage risk and have stop losses in place.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the our website Disclosure Policy here.
