Nvidia Corporation (NASDAQ:NVDA) : The Exact Trigger that Indicates Bearish Momentum
Date Published: 2019-01-03
DisclaimerThe results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
PrefaceNvidia has been the apotheosis for technological innovation and even with the bear market of late 2018, the stock has seen a meteoric rise in stock price and relevancy. It truly has become one of the crown jewels of technology's future.
But, even in that time, there is a trigger in Nvidia Corporation (NASDAQ:NVDA) that has preceded stock drops, turning a massive bull into a profitable bearish momentum back-test that has not triggered a losing trade in more than 5-years and showed triple digit returns during the Great Recession from 2007-2009.
There is such a technical condition, and we will review it, right now.
The Short-term Bearish Option Trade in Nvidia CorporationWe will examine the outcome of going long a short-term out-of-the-money (40 delta) put, in options that are the closest to 14-days from expiration. But we follow three rules:
* Never Trade Earnings
Let's not worry about stock direction or earnings, let's try to find a back-test that benefits from volatility. Here it is, first, we enter the long put.
* Use a technical trigger to start the trade, specifically:
Wait until the day that the stock price crosses below the 200-day moving average and the stock price is below the 10-day moving average. Here is a nice simple image of the technical requirement:
* Finally, we set a very specific type of limit:
* Use a 20% limit
* Close the trade after 10 days, if the limit has not been hit.
At the end of each day, the back-tester checks to see if the long put is up 20%. If it is, it closes the position. If after 10-days the limit has not been hit, the put is closed so not to suffer total time decay.
RESULTSHere are the results over the last five-years in Nvidia Corporation:
The mechanics of the TradeMachine® Stock Option Backtester are that it uses end of day prices for every back-test entry and exit (every trigger).
Setting ExpectationsWhile this strategy had an overall return of 159%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 92.3%.
Checking the Moving AverageYou can check to see the moment a stock dips below the 200-day MA for NVDA on the Pivot Points tab on www.CMLviz.com.
Back-testing More Time Periods in Nvidia CorporationNow we can look at just the last year as well:
In a period where NVDA stock saw a negative 35.7% return, this bearish trigger saw a 124% positive return. Here is a chart of the option strategy (in blue) and the stock price (in gray):
Notice how the trigger is 'silent' for a long period of time, and then triggers as the stock price sees a technical breakdown. That's exactly the goal.
And finally we can look at the period from 2007-2009, which includes the Great Recession.
In a period where NVDA stock was down 22.4%, this bearish trigger saw a 135% positive return.
WHAT HAPPENEDTrade Machine gives you the capacity to trade beyond luck.
Tap here to see it for yourself
You should read the Characteristics and Risks of Standardized Options.
Past performance is not an indication of future results.
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.