Nvidia Q4 earnings on February 22nd

Nvidia (NVDA) Stock: 2023 February Earnings in Focus

By:Ryan Sullivan

What does Nvidia do?

Nvidia is a global leader in visual computing technologies and the inventor of the graphic processing unit (GPU). Nvidia’s focus has evolved from PC graphics to artificial intelligence (AI), developing solutions that now support high performance computing, the gaming industry, and virtual reality systems.

Nvidia's GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores. Nvidia’s GPUs are integral to developing deep learning algorithms, among other demanding computational applications.

The most cutting-edge consumer technologies, such as robotics and self-driving cars, rely on the processing units that NVDA produces. NVDA is also a dominant name in the Data Center industry, where they compete with companies like Intel and Advanced Micro Devices (AMD). NVDAs partnership with almost all major cloud service providers (CSPs) and server vendors is a key to maintaining its mote.

Price percent change for NVDA, SPY, GLD, and TLT, since July 1st, 2022.
Fig. 1: Price percent change for NVDA, SPY, GLD, and TLT, since July 1st, 2022.

How has NVDA been trading?

NVDA is currently trading at $225.12, up 51.59% from its opening price of 2023. Price has shot up in 2023. We’ve only seen 10 red days of trading in 2023 so far. At its current price, NVDA is 35.17% off its all-time high.

If you take a step back and look at the last five or ten years of price action for NVDA, you’ll notice the dominating bullish bias. This price action throughout a long period of time indicates that NVDA is an in-demand instrument that investors want to own. Over time, buyers have pushed the price of NVDA higher regardless of time.

As an investor, this tells us that NVDA likely produces a product that is currently in-demand and that the outlook for NVDA is positive. More to the point, investors like what they see, and they expect to continue to like it in the future. As traders, we can use this information to our advantage. The better we understand a market, the better we can draw conclusions.

How should I trade NVDA right now?

NVDAs financial statements for the last five quarters have been positive. Earnings reports throughout that period have shown us NVDA’s profitability. It seems that NVDA is able to weather negative economic factors better than most. This is likely due to the nature of their industry and the demand for their products.

NVDA is scheduled to report earnings next week, February 22nd, after the close. NVDAs options market in March and April contracts are tight and liquid. If you have the buying power, the opportunity to put on almost any type of trade exists.

If you’d like to take advantage of NVDA’s earnings event next week, place a trade using March contracts. By placing an earnings trade using March contracts, you give yourself the opportunity to roll your position out to April contracts if the position goes against you.

Selling a naked strangle into earnings is risky, but it gives you the most exposure to any volatility contraction that occurs around an earnings event. Another potential trade is a short jade lizard, which can eliminate upside risk. Again, you have the choice to roll this position to April if price action goes against you after earnings.

Short jade lizard example using NVDA March options contracts.
Fig. 2: Short jade lizard example using NVDA March options contracts.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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