I’m going to present a ‘disaster’ insurance options strategy I’ll be using in our Active Opps managed accounts for clients of Inside Edge Capital, but first some context. Last Thursday I visited the New York Stock Exchange floor to do an interview on Power Lunch with my friend Brian Sullivan. The interview hit on several aspects of this confusing market including the government shutdown, market volatility, technicals of the indexes, the Michael Burry Palantir -Nvidia debacle that partially set this sell-off into motion (I wrote about last week), as well as Q3 earnings. Brian joked that we should appoint Nvidia’s earnings release as a national holiday. Well this is Brian’s NVDA’s day eve, markets are in sell-off mode ahead of the ‘celebration’, and investors are wondering how to dress for the party? To put a cherry on top, as I sat down this morning to prepare for the trading day many research websites I use were showing the Cloudflare green splash screen due to the latest internet outage. Sure, why not. What else could you throw at this market!? Nvidia’s Q3 earnings are tomorrow and the expectations are sky-high with GAAP quarterly earnings of $1.20 (53.85% growth vs Q2 of $1.08 and 15.23% above consensus) and revenues of $59.98B (56.73% growth vs Q2 of $46.74B and 2.63% above consensus). Note if you’re following along on NVDA daily chart’s sales and earnings data the quarters are off my 1 (showing Q4 instead of Q3). Looking at the chart, Q2 earnings were in August and essentially formed the floor of the highlighted pivot zone of $185-$175. While we’re above this ‘zone’ I consider the NVDA chart to be supported and positioned to move higher back into the 200’s. Notice that during the October – November decline the volume in NVDA has been declining suggesting it’s not panic selling, but more so a lack of buying interest. If NVDA earnings were to beat expectations but the sour and confused mood of investors were to drive the stock lower, or even worse the quarter misses expectations or guidance is lowered (not sure how that could possibly happen) and the stock breaks through the pivot zone, we need to prepare for further downside. In the red barbell annotation you’ll see the label $196 – $170. This is the market maker’s expected move higher or lower (+/- 1 standard deviations) following earnings. If the lower -1 standard deviation level of $170 is broken, there is a minor support level of $164.00. For clients of Inside Edge Capital we’ve been carrying a QQQ put spread hedge as I described on air with Brian last week. We booked profits on half of that position this morning and I’m going to lay out the next option hedge that we’ll carry through NVDA earnings. Looking at the QQQ daily chart, you’ll see an equivalent pivot zone of support from $595-$585. If the market reacts poorly to NVDA earnings I expect this zone to be broken and the next targeted zone of support at $560 could be tested. To protect some of our Active Opps holdings that we’ve worked so hard to build out (as described now in this Tuesday column for approximately 2 years), I am looking at the December monthly QQQ puts. I will buy the $580 strike put for ~$13.00 and sell the $560 strike put for ~$8.25 for a total cost of $4.75, or $475 of defined, fixed, maximum risk. The maximum reward is the $20 dollar spread width minus the cost $4.75, for $15.25 or $1,525 of maximum possible gain. Realistically you would expect to make between $1000-$1300 per spread (due to some complex ideas around the theta of the short strike -for another column). To calculate the appropriate amount of hedges to employ you would calculate the approximate drawdown your portfolio is subject to and how much of that you want to protect, if the NDX 100 is going to drop another 6% and back into the appropriate size. If we can help you with option hedges like this, please reach out at the link below. – Todd Gordon, Founder of Inside Edge Capital, LLC We offer active stock alerts portfolio management, as well as regular market updates like the idea presented above here. DISCLOSURES: Gordon owns QQQ hedges and NVDA in his wealth management company Inside Edge Capital. 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