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- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 14
Back in 2017 I had the fortune to buy 1000 shares of NVDA. The price was just over $35. As you may know, it is currently north of $600. There have been a couple of 50% drops along the way, but as I get older I've become more like my late father-in-law who never sold anything.
At any rate, to keep my monkey-mind occupied over the last year I've followed NVDA on a weekly chart with a simple buying approach to at-the-money calls. Whenever NVDA crosses above its 3-week simple moving average I buy ATM calls with six weeks until expiration (NVDA has weekly options). The options are held until the price drops below the SMA or for a max of five weeks.
Since 2014 the strategy has had one losing year. No compounding. Here are the yearly summaries:
Trades Ave Return
2014 9 20.7%
2015 12 - 2.8
2016 9 83.8
2017 9 54.8
2018 12 8.2
2019 9 48.5
2020 9 40.7
2021 9 162.8
2022 7 18.4
2023 9 81.9
So, why does this work? First, the overall trend has been up (although with some nasty tumbles). The moving average approach avoids a lot of the downside falls, although one is susceptible to upward blips in a down market.
Second, option returns are asymmetric. You can only lose 100% but can gain more than 100%. The highest return was over 10x.
DB2
No. of Recommendations: 1
At any rate, to keep my monkey-mind occupied over the last year I've followed NVDA on a weekly chart with a simple buying approach to at-the-money calls. Whenever NVDA crosses above its 3-week simple moving average I buy ATM calls with six weeks until expiration (NVDA has weekly options). The options are held until the price drops below the SMA or for a max of five weeks.
How has that done versus just buying and holding it?
No. of Recommendations: 0
You can probably BUY Belize with what you've won from NVDA. Nice job.
No. of Recommendations: 2
How has that done versus just buying and holding it?
It appears to have done a bit better than B&H. At the end of 2023 the stock went from $35 to $480, so with B&H $35K would compound to $480K.
The growth of the options strategy would depend upon the percentage size of the individual purchases. I haven't used the Kelly criterion to calculate the optimal percentage size, but if you used 10% of your cash for a position then the first year each purchase would be $3.5K worth of calls.
At the end of 2017 the $35K would have grown to $52K. In 2018 if you kept with the 10% rule then each call purchase would be for $5.2K. In 2019 that would increase slightly to $5.7K each time, growing the account to $82K by the end of the year. Each year saw growth, and for 2023 the position size would be $31.1K. Total at the end of 2023 would have been $540K, beating out the $480 with B&H.
I'll look into the optimal Kelly criterion size.
DB2
No. of Recommendations: 10
So, why does this work? First, the overall trend has been up...
A factor not to be underestimated! : )
Jim
No. of Recommendations: 3
First, the overall trend has been up...
---
A factor not to be underestimated!
Indeed; at the same time, there were drops of 57% and 65% along the way. So, like the market in general, the overall trend is up with some unpleasant drops along the way -- just on steroids.
Since option returns are asymmetrical, perhaps the extra volatility is a positive factor. Any thoughts?
DB2
No. of Recommendations: 0
Congratulations Dr Bob!
No. of Recommendations: 5
Congratulations Dr Bob!
Thank you.
I'll look into the optimal Kelly criterion size.
If I ran the numbers correctly, then the optimal position size was 0.23 over the last seven years. Going with a 20% position size (and calculating that at the beginning of each year) the original $35K pot would grow to $1048K -- considerably larger than B&H.
Here are the number for the Kelly criterion calculation. Hopefully I did this correctly.
% wins = 36%
% losses = 64%
Average gain = 216%
Average loss = -45%
W = 0.36
(1-W) = 0.64
R = 216/45 = 4.8
K = W - (1-W)/R
K = 0.36 - (0.64/4.8) = 0.23
DB2
No. of Recommendations: 1
Congrats, Dr Bob. Looks like your original purchase of 1,000 shares for $35K in 2017 is now worth $700K. That's a 2,000% return in 7 years.
According to the earnings they just reported, they more than tripled their revenue from $6B in the year-ago quarter to $22B this quarter. So they went from a $24B annual revenue run rate to a $88B run rate in a single year. I've never seen anything like this at this scale.
By comparison, it took Amazon Web Services 6 years to go from $25B in revenue in 2018 to $90B last year. AWS is at almost a $100B annual revenue run rate today.
Also impressive is Nvidia's operating leverage. Revenues were up 265% YoY but operating expenses were only up 25% YoY.
Net income was up 491% YoY and gross margins up to 76.7%.
Nvidia is expected to grow revenues in FY2025 by at least 60% and EPS by at least 70% yet the stock trades at 30x NTM EPS.
I've been long this stock since Jan 2023 once I saw what was going on with OpenAI and all the cloud providers.
No. of Recommendations: 4
This should he on the Nvidia board. The original post had some semblance of procedural trading but the second was a pure Nvidia board post so please post there in future:
https://www.shrewdm.com/MB?bid=1344Similarly there are two posts on the Index Investing about Nvidia that having nothing to do with Index Investing. They are *all* good posts, but Please post them only on the above Nvidia board in the future.
- Manlobbi
No. of Recommendations: 6
The first half of 2024 has proved kind to the Nvidia options strategy. There were two dips that provided call buying opportunities when the week-ending price dropped below the 3-week simple moving average. In both instances the at-the-money options were held for five weeks.
Week of Expiration Strike Entry Exit Return
Date Price Price
01/08/24 23 Feb 550 $31.05 $175.65 5.657x
04/22/24 7 Jun 880 $73.55 $211.97 2.882x
DB2
