Building a core position and trading around it using only options - $NVDA test case
Traders often define themselves as short-term traders or longer-term swing traders, each with its own advantages and disadvantages, we believe that a structure of these combined approaches can help maximize gains on selective tickers. We'll use NVDA to illustrate how we took advantage of a longer-term swing with a combination of shorter-term plays.
Back in January, we identified NVDA as a potential winner for 2021, it was a combination of fundamental and technical analysis.
As retail traders, we have to identify a fundamental driver for a move that analysts has yet to identify, following news and analysts' recommendation you are typically the last to find out about it and often late to the party.
Our thesis needed to be based on something that has yet to hit the mainstream press and
NVDA already had a vast variety of technology and benefits from the following assets: - Semiconductor leadership
- Crypto farming use of GPU
- Autonomous driving
All those are known so what is new here? our analysis looked at a combination of trends that led us to believe that the leadership of x86 architecture is coming to an end.
The combination of data centers moving into ARM-based architecture and $AAPL decision to move laptops away from x86 gives us early signs that alternative technology (RISC) is now mature enough to fit both commercial and consumer-grade applications.
Death of x86 will not happen overnight but the promise and discussion of such a disruption can be very rewarding. $NVDA was top of our list given the ARM acquisition.
Some more thoughts we shared on chat:
We're not the only ones looking at this driver. The weekly chart (pre-split) indicated accumulation, we were looking for a strong move over the following 12-18 months
Our plan was to scale into Jun, Sep and January positions
These positions are our core positions. We may add or reduce the core position if something fundamentally changes, however, the purpose is to extract maximum swing value out of them.
Usually, stocks burst a small amount of time and chop most of the time. The purpose of a core position is to allow you to get the majority of the move while riding the chop. We will add shorter-term positions to try to harvest those bursts in a more finely tuned timed execution.
Making profits along the way with shorter-term plays reduces the stress of managing a core position as you are extracting profits from the total campaign around this ticker.
We treat these core positions as full risk and treat as a fundamental based thesis until the last ER pre-expiration or a month pre-expiration (that's where premiums starts fading)
To illustrate, here are a few examples:
Around June we looked for pre-ER momentum combined with the split news putting a bid in the stock and we jumped on it
The recent break from multi-week minor consolidation
At this point, our core swing position was gravy, reducing the stress of actively managing it, allows for massive gains on this longer-term swing while reducing the stress of "am I going to miss my gains because I haven't yet taken profits"
As time passed by, we closed the expiring position of SEP (trailing stopped)
and finally, as our swing goals are hitting we're just now starting to peel off our January position.
We like to play longer-term swings with far OTM positions, this can easily be modified for an ITM or delta 30 positions or even just a stock position. It's really up to you to decide how to structure it.
The point of this write-up is to show how a multi-timeframe combination of straight directional plays can enable you to reduce stress from a longer-term position.
If you're considering yourself as a longer timeframe trader, consider looking at shorter-term opportunities to harvest additional gains. If you're a short term trader, ask yourself if this weekly move can be part of a bigger move and is there an opportunity to take advantage of