It seems most market participants are focused on NVIDIA’s after hour earnings Wednesday, 5/22/24, and waiting to see how the broader markets react moving forward.
One “trade” traders can utilize prior to earnings is called a P.E.T., or Pre-Earnings Trade, where the implied volatility priced into call option premiums tends to rise, creating a tailwind for rising premiums in addition to any buying demand coming into the stock.
These P.E.T. Trades tend to work best:
- In solid trending stocks
- In solid sectors
- When broader markets are in a bullish / “risk on” liquidity regime
- Often when stocks are at / coming up above round “psychological” trading numbers (ie. $100, $200, etc.) with defined risk/reward set ups, and
- Around 7 – 21 days prior to earnings announcements
NVDA – Daily Chart
While structurally in a longer term uptrend since October 2023, NVDA began losing upward momentum in March, started selling off/retracing, and then culminated in selling capitulation on April 19th (right near a 38.2% Fibonacci retracement level), with underlying momentum/relative strength then increasing and buyers coming back in late April to early May.
On Friday, May 3rd, price gapped up, broke out above a downward diagonal resistance line, and followed through with more buying coming in on Monday, May 6th.
As you can also see below in the proprietary Market Rover (MR) software algorithm, NVDA shows an ongoing “bullish (green) trend” and then flashes a buy “trade” idea on Friday May 3rd. The following Monday, May 6th, the Target 1 (T-1) price objective is hit, and then on Wednesday, May 15th, Target 2 (T-2) is also hit – Well before earnings.
For P.E.T. trades, we want to capitalize on increasing implied volatility and any interest coming into the stock prior to earnings – but DO NOT want to hold over any earnings announcements.
For those who may not like the relatively high price and daily volatility of NVDA as an individual name, we could also look to take advantage of a NVDA P.E.T. trade by looking at the industry NVIDIA trades within (Semiconductors) and the Semiconductor ETF (SMH) where NVDA is 20% weighted in the Top 10 Holdings, or 1/5th of the Net Asset Percentage. This reduces our comparative relative “risk” and “volatility” due to a broader basket of semiconductors held within the portfolio and still gives us decent NVDA exposure for a P.E.T. trade opportunity.
(SMH) VANECK SEMICONDUCTOR ETF:
SMH – Semiconductor ETF
Here the Market Rover (MR) algorithm also shows the Semiconductor Industry (SMH) in a well defined and overall bullish (green) trend, flashes a buy “trade” idea on Monday, May 6th, and then price hits both its T-1 and T-2 target (like NVDA) on Wednesday, May 15th.
The Bottom Line: Pre-Earnings Trades can be great opportunities for return potential, but you do have to play your cards right if you want to take advantage of them. Follow the checklist above to make it a little clearer for you.
After a few of these successful trades, you’ll REALLY learn to “Love your P.E.T.’$”
This is all done with our Market Rover software…
If you don’t have the Market Rover – here’s your shot to take it on a test run with our TRIAL.
See you on the next one,
Serge & JB
