Stocks remain under pressure, so it's worth looking at some more bearish opportunities. Nvidia stock sits below its 21-day exponential, the 50-day and 200-day moving averages. The 50-day moving average recently passed under the 200-day moving average, commonly known as a "death cross".
The imposition of new U.S. tariffs, including a 32% tariff on imports from Taiwan, has raised concerns about potential cost increases and supply chain disruptions for Nvidia.
Although semiconductors are currently exempt, products containing chips may be affected, potentially impacting overall demand and manufacturing. There are plenty of potential resistance levels above the current stock price.
Investors may want to examine a bear call spread that assumes Nvidia will struggle to get back above the 115 level between now and mid-June.
A bear call spread involves selling an out-of-the-money call and buying a further out-of-the-money call.
Maximum Gains, Maximum Losses
Investors can sell a June 20 expiry bear call spread on Nvidia stock, using the 115-120 strike prices, for around $1.30 as Nvidia trades around 98.40 this morning. Traders selling the spread would receive $130 in option premium, which is also the maximum possible gain. The maximum loss would be $370. That represents a potential return of 35% between now and June 20.
The spread will achieve the maximum profit if Nvidia stock closes below 115 on June 20. In that case, the entire spread would expire worthless, allowing the trader to keep the $130 option premium. That means Nvidia could drop, go sideways or rise more than 16% and this bearish trade still achieves maximum profit.
What if Nvidia jumps more than 20% before the expiration? The maximum loss occurs if Nvidia closes above 120 on June 20. That's right around where the 50-day line is currently. There, the premium seller loses $370 on the trade.
While some option trades have the risk of unlimited losses, a bear call spread is a risk-defined strategy. Investors always know the worst-case scenario in advance.
Stop Loss For Nvidia Stock
Investors can set a stop loss if Nvidia trades above 110, or if the spread value rises from $1.30 to $2.60.
According to the IBD Stock Checkup, Nvidia stock ranks No. 3 in its group. It sports a Composite Rating of 70, an Earnings Per Share Rating of 99 and a Relative Strength Rating of 30.
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.
