Nvidia’s earnings report is highly anticipated this week, as the chipmaker’s performance could impact the direction of U.S. stocks in the near future. With Nvidia leading the way, the semiconductor industry has been thriving in 2024 after a strong showing in 2023. The increasing demand for artificial intelligence has led to a significant surge in Nvidia’s stock price, skyrocketing over 500% since the beginning of 2023. However, there are concerns about the stock being over-owned, with over 500 different ETFs holding shares of Nvidia.
In light of this potential over-exposure, some investors are looking to hedge their positions in Nvidia without selling their shares. One strategy being considered is to use a put spread on the VanEck Semiconductor ETF (SMH), which has a significant weighting towards Nvidia. By buying a put option on SMH and selling another put option on the same ETF, investors can limit their risk and potential losses if the semiconductor sector experiences a pullback.
For example, an investor may buy the SMH 06/28/24 $230 Put for $6.75 and sell the SMH 06/28/24 $210 Put for $1.65, resulting in a debit spread cost of $5.10 per lot. If SMH trades below $210 before June 28, the investor can profit from the spread between $230 and $210, minus the premium paid to establish the hedge. This strategy offers a risk/reward ratio of about three to one.
It is important to note that the above information is for informational purposes only and should not be considered as financial advice. Investors should carefully consider their own financial circumstances and consult with a financial advisor before making any investment decisions.
In conclusion, Nvidia’s earnings report will be closely watched this week, and the performance of the chipmaker could impact the overall direction of U.S. stocks. With concerns about over-ownership of Nvidia and the semiconductor sector, some investors are considering hedging their positions using strategies like put spreads on semiconductor ETFs. As always, investors should conduct thorough research and seek professional advice before making any investment decisions.
Article Source
https://www.cnbc.com/2024/05/21/a-chip-stock-hedge-if-the-ai-trend-cools-off-a-bit-following-nvidias-earnings.html
