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Attention, income collectors everywhere! I know you are happy about Nvidia’s (NASDAQ:NVDA) dividend increase from earlier this year. That’s great, but it’s not the only way to earn income from your Nvidia stock investment. With a simple, two-step NVDA options trade, you can receive an upfront cash payment that could potentially boost your profits.
Nvidia remains the undisputed heavyweight champion of US-based artificial intelligence (AI) manufacturer of graphics processing units (GPU). But even a champion like Nvidia loses popularity from time to time.
That’s your signal to snap up shares at a discounted price — but there’s more you can do besides buying Nvidia stock. Check out this flexible options-selling strategy that lets you put cash into your account while staying in the trade for a while.
Writing covered calls on Nvidia stock
There is an options trading strategy known as the buy-write strategy that involves only two steps. First, you would buy 100 shares of NVDA at the current price. That is the “buy” part of “buy-write.”
You then execute the “write” portion of the “buy-write” trade, which means you “write” or sell a covered call option on your 100 Nvidia shares. You can choose the strike price and expiration date for the covered call option you are selling. You must sell your 100 NVDA shares if the stock price is above the strike price when the option expires.
There is a trade-off when you sell a covered call option. If NVDA stock is above the strike price when the option expires, you could not participate in the entire upward move in the stock. However, you could still participate in some of from the upward movement of the stock and you received a “premium payment” when you sold the covered call option.
This is a great strategy if you want to buy Nvidia stock at the current low price but don’t expect the stock to “go sky high.” A buy write makes perfect sense for investors who are more focused on generating income than fantasies about huge price swings.
Use a chart to find Nvidia options strike prices
The chart below shows the daily candlestick charts of NVDA stock with resistance levels. These resistance levels can serve as guides to good strike prices when selling covered calls.
The resistance levels happen to be at $120, $125, and $135. The market could sell Nvidia shares at these levels, so why not use these levels as strike prices?
Here are some possible combinations of Nvidia call options strike prices and expiration dates for a buy-write strategy. Check with your broker before selling any of these call options, as prices can change:
- Sell an NVDA call option with a strike price of $120 expiring on October 18: Receive $9.95 per share or a total of $995
- Sell an NVDA call option with a strike price of $125 expiring on November 15: Receive $9.95 per share or a total of $995
- Sell an NVDA call option with a strike price of $135 expiring on December 20: Receive $9.25 per share or a total of $925
At the time of this writing, Nvidia stock was trading at $115.94 per share. So, to implement this buy-write strategy, you would need to have enough cash in your account to purchase 100 shares of Nvidia, which would cost a total of $11,594, before you can sell a covered call on those shares and collect the premium payment.
NVDA Options: Get Your “Second Dividend” Today!
Now you can see why some people call selling covered call options a “second dividend” strategy. You can already collect Nvidia’s dividend payments every three months. In addition, you can use a buy-write strategy to earn even more profit on your 100 Nvidia shares.
This is a smart way to invest in GPU chip giant Nvidia. Try different strike price and expiration date combinations and try this NVDA options buy-write strategy today.
On the day of publication, David Mnadel had (neither directly nor indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publishing policies.
At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.
