NVIDIA actually underperformed the Philadelphia Semiconductor Index? A valuation gap with 150% historical returns! Option traders eye 'Theta' for opportunities!
Option King recently found that the performance of tech stocks related to the "AI" concept has been mixed, and many of you may have encountered many "earnings exceeding expectations, but stocks hitting rock bottom" situations that are jaw-dropping. The consecutive setbacks of Oracle and Broadcom dragged down the entire U.S. stock market, only to be strongly lifted by Micron in the second week. "Santa Claus" also sent investors a big gift last Friday! I wonder if you guys managed to grab a piece of this big pie?
(After U.S. market close on the 22nd)
We tend to believe that AI can create miracles time and time again, but the center of AI technology — $NVIDIA(NVDA.US), after reaching its peak price of over $200 at the end of October, began a period of consolidation, fluctuating around $180, jokingly referred to by everyone as "weaving machine market." Investors who recently tried to use "call options" to "test" whether NVIDIA's stock price would break through are now in tears, I wonder how investors using "Covered Calls" or selling "put options" are doing? Option King wants to see how you guys are using options to make "NVIDIA money" recently!
Bernstein Points Out That Now Is a "Historic Opportunity" to Invest in NVIDIA
However, on December 20, Bernstein analyst Stacy Rasgon published "big news" in the latest research report, stating that NVIDIA's current stock price is only 25 times its expected earnings for the next year. This number is what we commonly call EPS (Price-to-Earnings Ratio), and a value of 25 means the stock's valuation falls at the 11th percentile of its range over the past 10 years, at historically extremely low levels!
(Analyst's NVIDIA stock price forecast changes, source: MarketBeat)
If you continue reading the report, you'll see that the analyst believes: "NVIDIA's current stock price is particularly cheap!" Historical backtesting data from the past 10 years shows that as long as we buy NVIDIA when its valuation is below 25 times EPS and hold for a year, this investment can yield an average return of over 150%! Moreover, such an investment strategy in the past was almost like a "capital-protected investment," with no cases of one-year holding losses in the statistical sample.
Stacy Rasgon gave NVIDIA a "Outperform" rating with a target price of $275. However, in contrast, NVIDIA's recent performance can only be described as "barely satisfactory": its stock price fell -12.59% in November and rose only +3.79% in December. The cumulative gains over the past six months are about 35% behind the Philadelphia Semiconductor Index (SOX). If we use $iShares Semiconductor ETF(SOXX.US) as a benchmark to backtest NVIDIA's stock price movement, there have been only 13 days in the past decade when NVIDIA's stock was cheaper than it is now. The analyst used the word "rare" to describe the current valuation's possibility in the market.
(NVIDIA CEO Jensen Huang at a White House meeting, source: Bloomberg)
According to insiders, after being approved to export H200 chips to China, NVIDIA plans to deliver 5,000 to 10,000 chip modules to the Chinese market before the Lunar New Year holiday in mid-February, equivalent to 40,000 to 80,000 H200 chips to fulfill the first batch of orders. However, this deal is still uncertain, as Chinese companies also need to wait for approval to purchase H200 AI chips. Interested companies include Chinese internet giants Tencent, Alibaba, ByteDance, etc. According to BNN Bloomberg's forecast, the Chinese market could bring about $5 billion in purchases per quarter.
Long-Term Bullish on NVIDIA? Don’t Forget to Check This "Theta" in Options Trading
Long-Term Bullish: Leap Call to Bet on "AI Faith"
According to historical backtesting, if you buy NVIDIA now and hold it, you could see a 150% increase in your investment after a year!
If you buy riskier short-term options, we can't perfectly predict whether the bells of Christmas and the New Year will herald an AI bull market or a slow decline amid market volatility. Leap Call provides us with an excellent tool for long-term positioning in NVIDIA. Over time, Leap Call's Theta (the rate at which the option's value decays over time) is lower:
Option King here compared the option chain data of two NVIDIA call options. The daily Theta decay of the Leap Call expiring on January 15, 2027, is lower than that of the July 17, 2026, option. Buying Leap Calls gives us the "time" to "wait" for hot market trends.
Smart Use of "Bull Call Spread" to Capture Double Returns
If a 150% gain in a year is possible, then a 20% gain in six months is also achievable!
To offset the impact of Theta, we can buy one Call and sell another Call:
This way, we get a Bull Call Spread strategy. If NVIDIA's stock price is greater than or equal to $220 on the settlement date, this option combination achieves its maximum return, which is more than double the premium we paid.
At the same time, the current Theta of the entire combination can be calculated as: Theta (buy) - Theta (sell) = -0.068 + 0.061 = -0.007. If the stock price doesn't move, this option combination only loses $0.7 in value per day!
What do you investors think about NVIDIA's stock price trend in 2026? Can this world-leading company, which "sells shovels" in the AI era, continue to create miracles? Leave your thoughts in the discussion section—every investor's genuine opinion can make you an "analyst" in the Longbridge community!
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